Does Political Competition Matter for Economic Performance? Evidence from Sub-National Data

Abstract

The study utilises data on major Indian states for the period 1980–2004 to explore the impact of political competition on state-level income and fiscal variables. The findings suggest that an increase in political competition leads to an increase in state per capita income and growth. In terms of magnitude, a proportionate increase in political competition, measured in terms of vote margin, raises per capita income by roughly 0.001. Focusing on fiscal variables, the analysis indicates that tighter political competition increases economic expenditure. The evidence also appears consistent with the career concern hypothesis, which suggests that politicians increase developmental spending in order to improve their re-election prospects.