Estimating the Impact of Welfare Programs on Agricultural Output: Evidence from India

Rural welfare programs are implemented for a variety of reasons. However, of key importance is to understand how government spending under such programs affects local agricultural output which is a key measure of economic activity in developing economies. This article estimates the local multiplicative effects of transfer spending by the government using a novel data‐set of state‐level expenditure under rural welfare programs in India. Using government records as narrative evidence, I use the motivation to implement new programs at the national level to construct changes in transfer spending that are largely exogenous to fluctuations in agricultural output at the state level. I estimate local multipliers using this “narrative shock series” and find government transfers to be quite consequential for local economic activity.