Using panel data from 14 Indian states between 1990 and 2002, this paper empirically examines how the share of government spending on public goods such as health, education and basic infrastructure affects per capita gross domestic product growth and poverty reduction at the state level. Consistent with similar studies based on national-level data sets, the findings from this study show that the share of public goods expenditures in total government spending has a large, positive and significant impact on per capita gdp growth, and that the share of spending on social public goods such as education and health contributes significantly to poverty reduction. Especially, reallocation of expenditures to raise the share of public goods spending could on average increase per capita gdp growth rate by up to 2.7 percentage points, and reallocation of funds to increase the share of social public goods expenditures could on average reduce poverty headcount index by up to 6.6 percentage points.
