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Growth Effects of Fiscal Policy of India States

Author

Listed:
  • Pushpa Trivedi

    (Professor, Department of Humanities and Social Sciences, Indian Institute of Technology Bombay)

  • Rajmal

    (Assistant Adviser, Department of Economic Analysis and Policy Research, Reserve Bank of India and currently on Deputation as the Officer on Special Duty, External Debt Management Unit, Ministry of Finance, Government of India)

Abstract

As witnessed in the recent past, lopsided regional development has become a threat to inter-state migration in India. This can also thwart the peace and security in the country. No wonder then that development has become an electoral agenda at the state level. The development deficit at the state level is being taken cognisance of not only by the academicians but by political leadership as well. In view of this, this paper examines the role of fiscal policy implemented by the states in reducing the regional disparities in the economic growth across states. We examine the growth effects of fiscal policy instruments of the major states of India during the period 1980-81 to 2006-07, using the panel data approach. The study finds that fiscal deficits of the states result in contraction of growth. As regards the impacts of the various items that constitute the fiscal deficit, viz., taxes, revenue expenditures and capital expenditures, the impact of each of these items on the growth of the states has been found to differ. Capital expenditures, particularly those on transport, communications and education are found to promote economic growth, albeit with a time lag. The study also raises concerns over the deterioration in the quality of fiscal deficit of states due to its adverse implications on economic growth. Based on the empirical results, we advocate increased capital expenditure at the state level as an integral part of the strategy for regionally-balanced growth. A positive externality of this strategy could also reduce expenditure on the internal aggression across the states of India.

Suggested Citation

  • Pushpa Trivedi & Rajmal, 2011. "Growth Effects of Fiscal Policy of India States," Millennial Asia, , vol. 2(2), pages 141-162, July.
  • Handle: RePEc:sae:millen:v:2:y:2011:i:2:p:141-162
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    Cited by:

    1. Sarah K. S. Shannon & Christopher Uggen & Jason Schnittker & Melissa Thompson & Sara Wakefield & Michael Massoglia, 2017. "The Growth, Scope, and Spatial Distribution of People With Felony Records in the United States, 1948–2010," Demography, Springer;Population Association of America (PAA), vol. 54(5), pages 1795-1818, October.
    2. Calogero Carletto & Jennica Larrison & Çaglar Özden, 2014. "Informing migration policies: a data primer," Chapters, in: Robert E.B. Lucas (ed.), International Handbook on Migration and Economic Development, chapter 2, pages 9-41, Edward Elgar Publishing.
    3. Stegelin, Forrest E. & Esalante, Cesar L & Fonsah, Esendugue Greg & Kightlinger, Keith D., 2011. "Farm and Agribusiness Labor: Spotlight on Georgia’s Produce Industry," Journal of Agribusiness, Agricultural Economics Association of Georgia, vol. 29(2).
    4. Huzeyfe Torun & Semih Tumen, 2017. "The empirical content of season-of-birth effects: An investigation with Turkish data," Demographic Research, Max Planck Institute for Demographic Research, Rostock, Germany, vol. 37(57), pages 1825-1860.
    5. Bahrs, Michael & Schumann, Mathias, 2016. "Unlucky to Be Young? The Long-Term Effects of School Starting Age on Smoking Behaviour and Health," hche Research Papers 2016/13, University of Hamburg, Hamburg Center for Health Economics (hche).
    6. Atalay, Yasemin & Kalfagianni, Agni & Pattberg, Philipp, 2017. "Renewable energy support mechanisms in the Gulf Cooperation Council states: Analyzing the feasibility of feed-in tariffs and auction mechanisms," Renewable and Sustainable Energy Reviews, Elsevier, vol. 72(C), pages 723-733.

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