This paper presents an empirical investigation that examines the role of ethnicity along with the caste dimension in influencing local government spending on public goods like education, lighting, drainage, health and public works in municipalities in West Bengal. The study suggests that higher ethnic diversity is associated with lower local government spending on all types of public goods under both cross sectional and panel data analysis. Though the role of higher ethnicity is not robust for lower local government spending on all types of public goods, such an ethnic differentiation based on caste lines might lead to greater inequality in status and opportunities, deeper tensions and rivalries, more social conflict and political instability between different caste groups in the region in the future, which, in turn, may be a strong impediment to economic development and growth.
