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Options and Strategies for Fiscal Consolidation in India

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  • Sampawende J.-A. Tapsoba

Abstract

The paper uses a multi-region DSGE model to quantify the macroeconomic implications of three adjustment scenarios for India: growth-friendly, social-friendly, and a benchmark case centered on bringing down unproductive spending and strengthening the consumption tax. Simulations indicate that fiscal consolidation yields considerable long-term benefits but also entails output costs in the near term. The scenarios in which deficit reduction is accompanied by greater investment and social spending lead to better results than the benchmark case. The consolidation package alone is not enough to maximize net gains. Other factors, such as the pace and the credibility of consolidation, the concomitant implementation of structural reforms, and global economic conditions, play a critical role in the success of fiscal consolidation.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 13/127.

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Length: 26
Date of creation: 29 May 2013
Date of revision:
Handle: RePEc:imf:imfwpa:13/127

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Keywords: Fiscal consolidation; India; Economic growth; Fiscal reforms; Economic models; open economy macroeconomics; DSGE models; India.; fiscal policy; fiscal multipliers; fiscal tightening; fiscal balance; fiscal instruments; government expenditure; fiscal model; fiscal tools; public investment spending; fiscal strategies; structural fiscal; fiscal adjustment; tax revenue; fiscal position; government spending; public spending; fiscal vulnerabilities; public expenditures; taxation; fiscal responsibility; fiscal imbalances; tax rates; public debt; fiscal correction; fiscal shock; fiscal authority; tax income; fiscal stance; fiscal stabilization; fiscal stimulus; fiscal situation; spending cuts; budgetary constraints; budget management; fiscal deficit; fiscal adjustment packages; tax revenues; government revenue; fiscal measures;

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  1. Clinton, Kevin & Kumhof, Michael & Laxton, Douglas & Mursula, Susanna, 2011. "Deficit reduction: Short-term pain for long-term gain," European Economic Review, Elsevier, vol. 55(1), pages 118-139, January.
  2. Anja Baum & Marcos Poplawski-Ribeiro & Anke Weber, 2012. "Fiscal Multipliers and the State of the Economy," IMF Working Papers 12/286, International Monetary Fund.
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