Abstract
Social Sector Spending constitutes a central instrument for advancing human development, reducing regional disparities and strengthening inclusive growth in federal economies. This study empirically examines the fiscal and economic determinants of Social Sector Spending (SSE) across 15 major Indian states over the period 2005–2025 using a balanced panel dataset N = 315. Drawing on the theoretical foundations of public finance and fiscal federalism, the analysis employs a panel multiple regression framework to estimate the effects of Per Capita GSDP, Own Tax Revenue, Fiscal Deficit, Debt and Intergovernmental Grants on state-level social spending. The results reveal that fiscal deficit and intergovernmental grants exert statistically significant and economically meaningful effects on SSE, underscoring the importance of fiscal transfers and borrowing strategies in financing social commitments. Per Capita GSDP and Own Tax Revenue show limited independent influence, suggesting that institutional fiscal mechanisms outweigh income effects in determining expenditure allocation. The model demonstrates strong explanatory power and satisfies standard diagnostic conditions. The findings contribute to the literature by providing state-level evidence on the fiscal drivers of social expenditure in India and offer policy insights for improving transfer design, fiscal sustainability and expenditure efficiency within a decentralized governance framework.
Keywords: Fiscal Federalism, Intergovernmental Transfers, Panel Data Analysis, Social Sector Spending, State Public Finance.