Defence spending, fiscal federalism, and economic growth in India: A new approach

This paper proposes a new approach to the analysis of the military expendit ure - growth nexus, applied to the case of India. Military expenditure has, first, a direct impact on the central government budgetary decisions, with a variety of crowding-out effects on other public spending. Second, there is an interaction with local government expenditure decisions in a federal state structure such as the Indian one, in particular through changes in th e transfer of income from the central government to local governments. Thir d, all these fiscal decisions have an impact on growth through the accumula tion of human capital and through infrastructure building. Government expen diture behaviours are estimated on Indian times series specifically built f or this purpose, while their impact on growth are evaluated through simulat ions of a calibrated endogenous growth model of India.