Local public goods in a democracy: Theory and evidence from rural India

This paper examines allocation of local public goods over jurisdictions (villages)
with individuals with identical tastes and different incomes, in a model with democratic
institutions and majority rule. The median voter (in income) in each jurisdiction
determines the probability of re-election for the incumbent government. The
jurisdiction with the median of these median voters is most favoured. With identical
median voters in jurisdictions, and with re-election requiring less than 50mandate,
jurisdictions with higher income inequality get favoured. Results from a survey
data (from NCAER) on infrastructure provision in 1669 Indian villages confirm this
hypothesis. Ethnic fragmentation does not affect public good provision but political
fragmentation does. Finally, villages with the median population are the most
favoured for public goods allocation. Sparsely populated and too densely populated
villages are relatively neglected.