My Paladin croaked. I am about 400 xp until level 2. Is it economical to spend the $200 and raise him from the dead?

Gold is most important in the early game. Later on you should have scads of it. In the grand scheme of things it won't matter.

However, since it costs money to level your characters, it could be that resurrecting your Paladin means you'll have to grind for money some more before everyone can level up.

If you've saved the game with him dead (and I assume you did), I'd say spend the money...

Depends on how long you'd have to roll until you get a paladin with those stats again

He's a level one character. Bury him, cry at the funeral, and move on.

As others have said, you could just make a new character since your paladin was level 1, but then you'd start the new character with 0 experience. So basically your options are to pay for the resurrection and then have to do a bit of grinding to get the gold back, or create a new character and then do a bit of grinding to get the experience back.

Personally, I'd be inclined to resurrect because I tend to get attached to my characters, and because gaining a few levels is very important early in the game. Of course, gaining levels requires experience AND money, but as the game goes on experience will be more valuable than money. In the beginning you'll be short on both, so it's your call... either way you'll have to do a bit of grinding.

Sounds good to me

Oh, and don't forget to take his stuff to give to his replacement.