Estimating the Multiplier Effect of Tertiary and Social Sector Expenditure in Karnataka Completed

Duration: June 2018 – June 2021

Funder/Partner: Finance Department, Government of Karnataka

When examining the impact of government expenditure in social sector, academic studies have mostly focused on changes in longer term social outcomes such as educational attainment and health status. While welfare outcomes such as the above are important in themselves, it is fairly well accepted that investment in human capital also has growth enhancing effects. It is important to understand how the level of investment and recurrent expenditure in these sectors might contribute to the expansion of economy with varying time lags. In addition the tertiary sector in Karnataka has evolved rapidly and now contributes to the largest share of the state GDP. It is important to understand the implications of the growth in tertiary sector on the primary and secondary sectors of the economy.

Towards this end, we propose to undertake a study which aims to estimate and understand the multiplier effect of public spending in the social sector and implications of growth of tertiary sector for the sustained economic growth in Karnataka. The expected outcomes of the study include a methodological framework to estimate the multiplier effects of tertiary and social sectors for the state of Karnataka. We aim to provide a knowledge base for policymakers to understand the macro-economic implications of government expenditure in social sectors, which can then be adapted to evaluate related policy decisions.