¹ This literature goes by the name of political business cycle (PBC) theory and partisan theories. The salient contributions include: Kramer, Gerald, ‘Shorter-term Fluctuations in US Voting Behavior’, American Political Science Review, 65 (1971), 131–143CrossRefGoogle Scholar; Tufte, Edward, ‘Determinants of the Outcomes of Midterm Congressional Elections’, American Political Science Review, 69 (1975), 812–826CrossRefGoogle Scholar; Nordhaus, William, ‘The Political Business Cycle’, Review of Economic Studies, 42 (1975), 160–190CrossRefGoogle Scholar; Hibbs, Douglas, ‘Political Parties and Macroeconomic Policy’, American Political Science Review, 71 (1977), 1467–1487CrossRefGoogle Scholar; Tufte, Edward, Political Control of the Economy (Princeton, N.J.: Princeton University Press, 1978)Google Scholar; Alesina, Alberto, ‘Macroeconomic Policy in a Two-Party System as a Repeated Game’, Quarterly Journal of Economics, 102 (1987), 651–678CrossRefGoogle Scholar; Alesina, Alberto, ‘Macroeconomics and Politics’, National Bureau Economic Research Macroeconomics Annual, 3 (1988), 13–61Google Scholar; Alesina, Alberto and Rosenthal, Howard, Partisan Politics, Divided Government and the Economy (Cambridge: Cambridge University Press, 1995)CrossRefGoogle Scholar; and Alesina, Alberto, Roubini, Nouriel and Cohen, Gerald, Political Cycles and the Macroeconomy (Cambridge, Mass.: MIT Press, 1997)Google Scholar. For an excellent review, see Franzese, Robert J. Jr, ‘Economic and Partisan Cycles in Economic Policies and Outcomes’, Annual Review of Political Science, 5 (2002), 369–421CrossRefGoogle Scholar.

² Olson, Mancur, ‘Dictatorship, Democracy, and Development’, American Political Science Review, 87 (1993), 567–576; and Bardhan, Pranab, The Political Economy of Development in India, expanded edn (Delhi: Oxford University Press, 1998)CrossRefGoogle Scholar.

³ Franzese, , ‘Electoral and Partisan Cycles in Economic Policies and Outcomes’, pp. 369–371Google Scholar.

⁴ Muller, Wolfgang and Strøm, Kaare, Policy, Office, Or Votes? How Political Parties in Western Europe Make Hard Decisions (Cambridge: Cambridge University Press, 1999)CrossRefGoogle ScholarPubMed.

⁵ For instance, testing of the PBC and subsequent models has been most developed for presidential or congressional elections in the United States, followed by testing for OECD and European countries. See, e.g., Kramer, , ‘Shorter-term Fluctuations in US Voting Behavior’Google Scholar; Hibbs, Douglas, The American Political Economy: Macroeconomics and Electoral Politics (Cambridge, Mass.: Harvard University Press, 1987)Google Scholar; Alesina, Alberto, Londregan, John and Rosenthal, Howard, ‘A Model of the Political Economy for the United States’, American Political Science Review, 87 (1993), 12–23CrossRefGoogle Scholar; and Alesina, and Rosenthal, , Partisan Politics, Divided GovernmentGoogle Scholar. Further testing of PBC has yielded results in OECD or European countries. See, e.g., Alesina, Alberto and Roubini, Nouriel, ‘Macroeconomic Policies and Elections in OECD Democracies’, Economics & Politics, 4 (1992), 1–30, who test for OECD countriesCrossRefGoogle Scholar; Lewis-Beck, Michael, Economics and Elections: The Major Western Democracies (Ann Arbor: University of Michigan Press, 1988), who tests for Germany, France, Italy, Spain and the United KingdomGoogle Scholar; and Madsen, H., ‘Electoral Outcomes and the Macroeconomic Policies: The Scandinavian Cases’, in P. Whitley, ed., Models of Political Economy (London: Sage, 1980), pp. 15–46, for Denmark, Norway and SwedenGoogle Scholar.

⁶ A few notable exceptions are Khemani, Stuti, ‘Political Cycles in a Developing Economy’, Journal of Development Economics, 73 (2004), 125–154CrossRefGoogle Scholar; Chhibber, Pradeep and Nooruddin, Irfan, ‘Do Party Systems Count? The Number of Parties and Government Performance in the Indian States’, Comparative Political Studies, 37 (2004), 152–187CrossRefGoogle Scholar; and Leblang, David, ‘The Political Economy of Speculative Attacks in the Developing World’, International Studies Quarterly, 46 (2002), 69–91CrossRefGoogle Scholar.

⁷ Chhibber, Pradeep, Shastri, Sandeep and Sisson, Richard, ‘Federal Arrangements and the Provision of Public Goods in India’, Asian Survey, 44 (2004), 339–352, find that citizens hold the relevant state governments responsible for the provision of local public goods in India.CrossRefGoogle Scholar

⁸ India has twenty-eight subnational states and, since her independence in 1947, held fourteen regular national elections in sixty years with one brief authoritarian interlude (1975–77), which illustrates India’s extensive experience with democratic institutions and elections. Regular elections are also held for provincial state assemblies, called vidhan sabhas, as well as for local governments, called panchayat raj (lit. rule by communal tribune) institutions.

⁹ Across India, the share of provincial expenditure on social services declined from 52.93 per cent in 1980–89 to 35.45 per cent in 1990–99; while the share of expenditure on economic services declined from 44 per cent to 30 per cent for the same period.

¹⁰ The literature on the provision of local public goods in India, an interesting case for testing some of these competing accounts (see below for more details on case selection), is relatively scanty. Some studies of decision-making on expenditure mostly focus on the national level (see, e.g., Basu, Anuradha, Public Expenditure Decision-Making: The Indian Experience (New Delhi: Sage, 1995Google Scholar)).

¹¹ Many of India’s states are ruled by ideologically driven parties, such as the Communist Party of India (Marxist) (CPI-M), Telugu Desam Party (TDP), Dravida Munnettra Kazhagam (DMK), and the All India Dravida Munnettra Kazhagam (AIDMK).

¹² Keech, William, Economic Politics: The Costs of Democracy (Cambridge: Cambridge University Press, 1995)CrossRefGoogle Scholar; Boix, Carles, Political Parties, Growth and Equality: Conservative and Social Democratic Strategies in the World Economy (Cambridge: Cambridge University Press, 1998)CrossRefGoogle Scholar; Garrett, Geoffrey, Partisan Politics in the Global Economy (Cambridge: Cambridge University Press, 1998)CrossRefGoogle Scholar; Iversen, Torben, Contested Economic Institutions: The Politics of Macroeconomics and Wage Bargaining in Advanced Democracies (Cambridge: Cambridge University Press, 1999)Google Scholar; Roberts, William Clark, , Capitalism, Not Globalism: Capital Mobility, Central Bank Independence and Political Control of the Economy (Ann Arbor: University of Michigan Press 2002)Google Scholar; Franzese, Robert J., Macroeconomic Policies of Developed Democracies (Cambridge: Cambridge University Press, 2002)CrossRefGoogle Scholar; Bernard, William and Leblang, David, ‘Democratic Institutions and Exchange Rate Commitments’, International Organization, 53 (1999), 71–97CrossRefGoogle Scholar.

¹³ The distinctive nature of this approach is discussed in more length in Snyder, Richard, ‘Scaling Down: The Subnational Comparative Method’, Studies in Comparative and International Development, 36 (2001), 93–111CrossRefGoogle Scholar.

¹⁴ Polanyi, Karl, The Great Transformation: The Political and Economic Origins of Our Time (Boston, Mass.: Beacon Press, 1944)Google Scholar. Polanyi notes: ‘In the last resort, impaired self-regulation of the market led to political intervention. When the trade cycle failed to come round and restore employment, when imports failed to produce exports, when bank regulations threatened businesses with panic, when foreign debtors refused to pay, governments had to respond to the strain. In an emergency the unity of society asserted itself through the medium of intervention.’ (p. 206.)

¹⁵ Garrett, , Partisan Politics in the Global Economy, p. 4.Google Scholar

¹⁶ See Sinha, Aseema, ‘The Changing Political Economy of India: A Historical Institutionalist Approach’, India Review, 3 (2004), 25–63CrossRefGoogle Scholar.

¹⁷ See, e.g., Saez, Lawrence, Federalism Without a Centre: The Impact of Political and Economic Reform on India’s Federal System (New Delhi: Sage Publications, 2002)Google Scholar. Also, see Jenkins, Rob, Democratic Politics and Economic Reforms in India (Cambridge: Cambridge University Press, 1999)Google Scholar; Rudolph, Lloyd and Hoeber Rudolph, Susanne, ‘The Iconization of Chandrababu: Sharing Sovereignty in India’s Federal Market Economy’, Economic and Political Weekly, 36 (2001), 1541–1552Google Scholar.

¹⁸ Uppal, Yogesh, ‘The Disadvantaged Incumbents: Estimating Incumbency Effects in Indian State Legislatures’ (unpublished manuscript, Youngstown State University, 2007)Google Scholar; Nooruddin, Irfan and Chhibber, Pradeep, ‘Unstable Politics: Fiscal Space and Electoral Volatility in the Indian States’, Comparative Political Studies, 41 (2008), 1069–1091CrossRefGoogle Scholar; Sridharan, E., ‘Electoral Coalitions in the 2004 General Election: Theory and Evidence’, Economic and Political Weekly, 39 (2004), 5418–5425Google Scholar; Linden, Leigh, ‘Are Incumbents Really Advantaged? The Preference for Non Incumbents in Indian National Elections’ (unpublished manuscript, Columbia University, 2004)Google Scholar; Kumar, Jayesh, ‘Parliamentary Elections and National Politics’, Journal of Indian School of Political Economy, 15 (2003), 633–646Google Scholar.

¹⁹ India has experienced strong anti-incumbency advantage with regular alternation of power in the last fifteen years or so.

²⁰ Bergstrom, Theodore and Goodman, Robert, ‘Private Demands for Public Goods’, American Economic Review, 63 (1973), 280–296, pioneered the empirical application of the median voter model to explain the supply of public goodsGoogle Scholar.

²¹ Oates, Wallace and Schwab, Robert, ‘Economic Competition Among Jurisdictions: Efficiency Enhancing or Distortion Inducing?’ Journal of Public Economics, 35 (1988), 333–354CrossRefGoogle Scholar. Also see Besley and Coate, who model the provision of public goods from a political economy perspective based on the preferences of legislators. Besley and Coate also rely on a median voter model whereby the legislator’s preferences are shaped by the preferences of local voters; the only difference in their ‘decentralized polity’ model is that each district is to have a government that makes decisions about local public goods (Besley, Tim and Coate, Stephen, ‘Centralized vs. Decentralized Provision of Local Public Goods: A Political Economy Analysis’, NBER Working Papers, No. 7084, 1999)Google Scholar.

²² Khemani, , ‘Political Cycles in a Developing Economy’, pp. 125–154Google Scholar; Chhibber, and Nooruddin, , ‘Do Party Systems Count?’ pp. 152–187Google Scholar; Bardhan, Pranab and Mookerjee, Dilip, ‘Expenditure Decentralization and the Delivery of Public Services in Developing Countries’ (Institute for Economic Development (IED) Discussion Paper No. 90, Boston University, 1998)Google Scholar, compare the effects of centralized and decentralized mechanisms for different types of social programmes and infrastructure delivery: anti-poverty programmes, roads, water, electricity and telecommunications.

²³ Khemani, Stuti, ‘Partisan Politics and Intergovernmental Transfers’ (World Bank Policy Research Working Paper, No. 3016, 2003)Google Scholar.

²⁴ See, e.g., Khemani, , ‘Political Cycles in a Developing Economy’Google Scholar.

²⁵ See, e.g., Chhibber, and Nooruddin, , ‘Do Party Systems Count?’Google Scholar

²⁶ Lizzeri, Alessandro and Persico, Nicola, ‘The Provision of Public Goods Under Alternative Electoral Incentives’, American Economic Review, 91 (2001), 225–239CrossRefGoogle Scholar.

²⁷ See, e.g., Chhibber, and Nooruddin, , ‘Do Party Systems Count? esp. pp. 173–174Google Scholar.

²⁸ Jaffrelot, Christophe, The Hindu Nationalist Movement in India (New York: Columbia University Press, 1996)Google Scholar; Blom Hansen, Thomas and Jaffrelot, Christophe, eds, The BJP and the Compulsions of Politics in India (New York: Oxford University Press, 2001)Google Scholar; Overstreet, Gene and Windmiller, Marshall, Communism in India (Berkeley: University of California Press, 1959)Google Scholar; Nossiter, T. J., Marxist State Governments in India: Politics, Economics, and Society (London: Pinter Publishers, 1988)Google Scholar; Mallick, Ross, Development Policy of a Communist Government: West Bengal Since 1977 (Cambridge: Cambridge University Press, 1993)CrossRefGoogle Scholar; Mallick, Ross, Indian Communism: Opposition, Collaboration, and Institutionalization (Delhi: Oxford University Press, 1994)Google Scholar.

²⁹ See, e.g., Hibbs, , ‘Political Parties and Macroeconomic Policy’Google Scholar.

³⁰ Boix, Carles, ‘Political Parties and the Supply Side of the Economy: The Provision of Physical and Human Capital in Advanced Economies 1960–1990’, American Journal of Political Science, 41 (1997), 814–845CrossRefGoogle Scholar.

³¹ Bharatiya Janata Party, Vision Document 2004 (available from www.bjp.org).

³² Lok Sabha Elections 2004, Manifesto of the Indian National Congress (available from www.inc.org.in).

³³ See, e.g., Wildasin, David, ‘Income Redistribution in a Common Labor Market’, American Economic Review, 81 (1991), 757–774Google Scholar; Shah, Anwar, ‘The Reform of Intergovernmental Fiscal Relations in Developing and Emerging Market Economies’, World Bank Policy and Research Series, No. 23 (Washington, D.C.: World Bank, 1994)Google Scholar.

³⁴ See, e.g., Kramer, G., ‘A Dynamic Model of Political Equilibrium’, Journal of Economic Theory, 16 (1977), 310–334CrossRefGoogle Scholar.

³⁵ Bendor, Jonathan, Mookherjee, Dilip and Ray, Debraj, ‘Satisficing and Selection in Electoral Competition’, Quarterly Journal of Political Science, 5 (2006), 1–30.Google Scholar

³⁶ See e.g., Chhibber, Pradeep and Nooruddin, Irfan, ‘Party Competition and Fragmentation in National Elections: 1957-1998’, in Paul Wallace and Ramashrai Roy, eds, Indian Politics and the 1998 Elections: Regionalism, Hindutva, and State Politics (New Delhi: Sage Publications, 2000)Google Scholar; Heath, Oliver, ‘Party Systems, Political Cleavages, and Electoral Volatility in India: A State-wise Analysis, 1998–1999’, Electoral Studies, 24 (2005), 177–199Google Scholar.

³⁷ Levitt, Steven and Snyder, James, ‘Political Parties and the Distribution of Federal Outlays’, American Journal of Political Science, 39 (1995), 958–980CrossRefGoogle Scholar.

³⁸ The electoral data from the Election Commission of India is available at http://eci.nic.in. Secondary sources include, Butler, David, Lahiri, Ashok and Roy, Prannoy, India Decides, 2nd edn (New Delhi: Living Media India, 1991)Google Scholar; Singh, V. B. and Bose, Shankar, State Elections in India, Data Handbook on Vidhan Sabha Elections, Vol. 1–5 (New Delhi: Sage Publications, 1987)Google Scholar.

³⁹ See Laakso, Markku and Taagepera, Rein, ‘Effective Number of Parties: A Measure with Application to West Europe’, Comparative Political Studies, 12 (1979), 3–27CrossRefGoogle Scholar.

⁴⁰ Many of the data points are available in the Statistical Supplement to the special issue on political parties and elections in Indian states, Journal of Indian School of Political Economy, 15 (2003), esp. 381–443Google Scholar. However, some of these figures are in error and do not cover the entire length of state assembly elections from 1980 to 2000. The figures provided by the Statistical Supplement were double checked for accuracy and updated by the authors.

⁴¹ Ghosh, Sugata, and Pal, Sarmistha, ‘On Regional Inequality and Growth: Theory and Evidence from the Indian States’, Econometric Society World Congress 2000 Contributed Papers, No. 1391 (2000)Google Scholar.

⁴² Before 1980, the Reserve Bank of India (RBI) disaggregated data for six social and community services (rather than the ten listed above) and five economic services (rather than the nine listed above). For instance, prior to 1980, two expenditure categories (medical and water supply) appeared under the same column heading. Prior to 1980, irrigation (which currently appears as a separate category) was subsumed under the general category of water and power development.

⁴³ The RBI expenditure categories listed above are arbitrary and have been altered slightly over time by the RBI. In this article we will be using the full range of disaggregated expenditure data available since 1980. These disaggregated categories include ten separate entries for social and community services and nine entries for economic services. A detailed description of the dependent and independent variables can be found in the Appendix.

⁴⁴ Overall, our entire database includes expenditure on nineteen separate public services.

⁴⁵ The POLEX-India dataset, version 2008.1, is available at: https://eprints.soas.ac.uk/4341. We request that scholars who make use of the POLEX-India dataset, version 2008.1, use the following citation: Lawrence Saez (2008) ‘Political cycles, political institutions, and public service expenditure in India (POLEX-India) data set, version 2008.1’.

⁴⁶ Besley, Tim and Burgesss, Robin, ‘The Political Economy of Government Responsiveness: Theory and Evidence from India’, Quarterly Journal of Economics, 117 (2002), 1415–1451CrossRefGoogle Scholar.

⁴⁷ In order to illustrate variation across states and across time, we have provided the three largest sources of state government expenditure (education, health, agriculture) across time (for each of the sixteen states in our study) in Figures 1, 2, 3 in our POLEX-India dataset. These three types of state government expenditure are arguably the most important for subnational economic development.

⁴⁸ It is worth noting that even though there had been a steady decline in Kerala’s expenditure on education, in 2000 it was still higher than that for many other states.

⁴⁹ Together with fiscal services, administrative services and pensions, the Reserve Bank of India classifies interest payments and servicing of debt by the state governments of India as non-developmental expenditure.

⁵⁰ Figure 4 in our POLEX-India dataset, for instance, shows that state government expenditure on servicing the debt has increased steadily across all states in India, most notably in Uttar Pradesh, Orissa and West Bengal.

⁵¹ A full description of the coding for all the variables used in the aggregate level analysis can be found in the Appendix.

⁵² In our article, we present the results for economic data for sixteen states over a twenty-year period. Our entire database includes data for nineteen dependent variables, namely disaggregated budgetary items for each of the total developmental expenditures in India’s states. As we have explained before, the choice of the number of states was made so as to include states in existence for the longest period of time available. Although fiscal data for states precedes our 1980 cut-off point, many states included in this study were not in existence beforehand. Overall, we have traded off the length of time against range of coverage in the dependent variable to maintain a rectangular dataset. Still, we have a sufficiently large T. For the sake of clarity in the presentation of our results, we have presented regression results for a handful of dependent variables (i.e., education, health, social security, agriculture and irrigation). Other researchers may wish to conduct empirical analyses of other budgetary expenditures.

⁵³ See Stimson, James, ‘Regression in Space and Time: A Statistical Essay’, American Journal of Political Science, 15 (1985), 914–947CrossRefGoogle Scholar.

⁵⁴ For reasons of space constraints, the resolution to this debate will obviously not be settled here. For a useful discussion about these methodological issues, see Beck, Nathaniel and Katz, Jonathan, ‘Nuisance vs. Substance: Specifying and Estimating Time Series Cross Section Models’, Political Analysis, 6 (1996), 1–34CrossRefGoogle Scholar. Also see Hays, Jude, chapter entitled ‘When to Use (and Not Use) Least Squares to Estimate Dynamic Panel Models’, in ‘Globalization and the Crisis of Embedded Liberalism: The Role of Domestic Political Institutions’ (doctoral dissertation, University of Minnesota, Department of Political Science, 2000).Google Scholar A response to Hays can be found in Beck, Nathaniel and Katz, Jonathan, ‘Time-Series-Cross-Section Issues: Dynamics, 2004’ (unpublished manuscript, presented at the annual meeting of the Society for Political Methodology, Stanford University, 2004)Google Scholar.

⁵⁵ Such a method is used, for instance, in Chhibber, and Nooruddin, , ‘Do Party Systems Count?’Google Scholar for macroeconomic data for fifteen Indian states over a thirty-year period for a single dependent variable that uses fiscal data (the proportion of the state’s budget allocated to civil administration). A logistic model is then used to estimate public perceptions of the delivery of public goods based on survey data results.

⁵⁶ See Beck, and Katz, , ‘Nuisance vs. Substance’, p. 2.Google Scholar Also see Beck, Nathaniel and Katz, Jonathan, ‘What to Do (and Not to Do) With Time-Series-Cross-Section Data’, American Political Science Review, 89 (1995), 634–647CrossRefGoogle Scholar.

⁵⁷ Beck, and Katz, , ‘Nuisance vs. Substance’, p. 24Google Scholar.

⁵⁸ Beck, and Katz, , ‘Nuisance vs. Substance’, p. 26Google Scholar.

⁵⁹ See Long, Scott, Regression Models for Categorical and Limited Dependent Variables (Thousand Oaks, Calif.: Sage, 1997)Google Scholar.

⁶⁰ As discussed by Sayrs, a Swamy random coefficient model has advantages in terms of its lack of bias and its efficiency relative to Seemingly Unrelated Regression (SUR) versions. Nevertheless, Sayrs points to a weakness in the robustness of the Swamy coefficients and suggests a Hsiao random coefficient model. However, as Sayrs emphasizes, a Hsiao random coefficient model requires a large N and and a large T; therefore, it would be inappropriate for analysis of our dataset. See Sayrs, Lois, Pooled Time Series Analysis (Newbury Park, Calif.: Sage Publications, 1989), esp. pp. 41–46CrossRefGoogle Scholar.

⁶¹ Ideology of the party seems to matter only in the case of social security expenditure, which constitutes a very small portion of total expenditure (around 2 per cent). State governments led by the BJP show a marked decline in social security expenditures.

⁶² Reserve Bank of India, Reserve Bank of India Bulletin (monthly series, 1980–2000).

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⁶⁵ Election Commission of India website. Data available at www.eci.gov.in.