Relating rule of law and budgetary allocation for tourism: Does per capita income growth make a difference for Indian states?

This paper contributes to the inadequately explored empirical literature on tourism for Indian States. It investigates how the rule of law influences federal budgetary allocation for tourism at the state level. Theoretically speaking, the impact of rule of law on budget allocation for the states can be positive or negative, if the prevailing rule of law affects tourism prospects. The centre can transfer more funds to boost tourism and income if state is affected by local unrest, or offer less support to push state for maintaining order. Employing dynamic panel estimates we show that such allocation for tourism responds negatively when rule of law worsens in a state. However, the estimated marginal impacts of rule of law on budget allocation show that the decline in budget allocation is smaller for richer states. From a policy perspective, these results suggest that rule of law and budgetary provisions for tourism are complementary.