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Options and Strategies for Fiscal Consolidation in India


  • Sampawende J Tapsoba


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.

Suggested Citation

  • Sampawende J Tapsoba, 2013. "Options and Strategies for Fiscal Consolidation in India," IMF Working Papers 13/127, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:13/127

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    References listed on IDEAS

    1. Thorsten Drautzburg & Harald Uhlig, 2015. "Fiscal Stimulus and Distortionary Taxation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(4), pages 894-920, October.
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    Cited by:

    1. Chadi Abdallah & David Coady & Sanjeev Gupta & Emine Hanedar, 2015. "The Quest for the Holy Grail; Efficient and Equitable Fiscal Consolidation in India," IMF Working Papers 15/152, International Monetary Fund.
    2. Muneesh Kapur & Rakesh Mohan, 2014. "India’s Recent Macroeconomic Performance; An Assessment and Way Forward," IMF Working Papers 14/68, International Monetary Fund.
    3. Rahul Anand & Volodymyr Tulin & Naresh Kumar, 2014. "India; Defining and Explaining Inclusive Growth and Poverty Reduction," IMF Working Papers 14/63, International Monetary Fund.
    4. repec:sos:sosjrn:170406 is not listed on IDEAS
    5. repec:vrs:tejoae:v:13:y:2016:i:2:p:21-29:n:4 is not listed on IDEAS
    6. Acharya, Rajesh H. & Sadath, Anver C., 2017. "Implications of energy subsidy reform in India," Energy Policy, Elsevier, vol. 102(C), pages 453-462.

    More about this item


    Fiscal consolidation; India; open economy macroeconomics; DSGE models; fiscal policy; fiscal multipliers; fiscal tightening; fiscal balance; Deficit;

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