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Fiscal dominance in India: An empirical estimation

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  • Kamila, Anshuman

    (Economic Division, Department of Economic Affairs, Ministry of Finance)

Abstract

This paper examined fiscal dominance in the Indian context by measuring the impact of Centre's primary fiscal balance on real interest rates and real GDP growth rate in the VECM framework. It was observed that an improvement in fiscal balance had a positive impact on real interest rate prior to 2003, and in the subsequent periods it turned negative. With regard to the impact of primary fiscal balance on real growth rate, it was observed that the period of 1978-2003 remained a period of dominant fiscal presence and an improvement in fiscal balance i.e. a reduction in fiscal deficit had a positive growth effect. The period following 2003, there was no evidence of fiscal dominance in the Indian economy.

Suggested Citation

  • Kamila, Anshuman, 2021. "Fiscal dominance in India: An empirical estimation," Working Papers 21/359, National Institute of Public Finance and Policy.
    • Handle: RePEc:npf:wpaper:21/359
    Note: Working Paper 359, 2021
    as

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    References listed on IDEAS

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    More about this item

    Keywords

    VECM ; Cholesky impulse response ; fiscal dominance ; FRBM;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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