Working Papers, UC Santa Cruz Economics Department 719
The poor quality and effectiveness of much of government expenditure in India makes it important to analyze ways of improving effectiveness through institutional reform. Improvements in outcomes include better targeting of redistributive measures and more efficient spending on productive projects. Four potential areas of institutional reform are: (1) improved functioning of individual ministries and departments, at the central and state levels; (2) better coordination across individual ministries and between the center and states, through reform of the Planning Commission; (3) reassignment of expenditure responsibilities across levels of government (center to state and/or state to local); and (4) reassignment of tax authorities to provide improved incentives for expenditure governance through electoral accountability. The paper will discuss each of these four areas of potential institutional reforms, their likely impacts, and possibilities for implementing change.