REVIEW OF LITERATURE – THEORETICAL AND EMPIRICAL PERSPECTIVE

Introduction

Education is recognized as a critical input for the holistic development of the economy. Further, the elementary education plays a very leading role in acquiring larger positive externalities to the society. The provision of elementary education is one of the central responsibilities of the government. Many economic theories also suggest substantial role for the government in providing of basic education.

All states in India have undertaken the responsibility of providing elementary education to their citizens. Voluminous government expenditure was increased on education across the states, but there is no significant achievement among the states in terms of educational outcomes. This chapter makes an attempt to review the available literature to understand the theoretical linkages of development and problems involved. The review of literature very helpful in understanding the research problems and explore the research gap and identify the ways that lead to solve the problem.

A: Theoretical Models of Public Expenditure on Education

Review of literature is divided into two parts. The first part represents the theoretical literature on financing of education, public good discussion, externalities involved with education and government intervention in the provision of education in the system. The role of education in economic development and important factors influencing on productivity and externalities involved also discussed here. The second part describes empirical studies on relationship between education and economic growth, inter-state variation in educational performance, efficiency of education system and factors influencing educational expenditure.

Finance is commonly referred as providing funds for commercial activities. Public finance includes both public revenue and public expenditure, which plays an important role in influencing the other variables in an economy. Public expenditure is referred as the expenses incurred by the Government for the maintenance of the government responsibility and to stimulate the welfare of the society. Financing is an economic activity of the government to provide and manage necessary resources for satisfying the needs of the people. Education is not a pure public good, because in certain situations education might violate the principle characteristics of the public good such as non-rival and non-excludability. But education in general or elementary education in particular is considered as social good or collective good, which produces various positive externalities and social advantages to the society.

Several economists have supported public expenditure on education for providing better educational opportunities in the society based on the argument that expenditure on education impacts economic development positively.

During the ancient period most of the countries were following the laissez faire policy, where market forces play dominant role in adjustment of the economy. The role of the state was limited. Even under laissez-faire policy, the Government was expected to perform certain functions.