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Federalism, Fiscal Space, and Public Investment Spending: Do Fiscal Rules Impose Hard Budget Constraints?

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  • Chakraborty, Pinaki

    (Asian Development Bank Institute)

Abstract

The core emphasis of rules-based fiscal legislation at the subnational level in India is to achieve debt sustainability through a numerical ceiling on borrowing and the use of borrowed resources for public capital investment by phasing out revenue deficits. Using the Arellano Bond Panel estimation, this paper examines whether the application of fiscal rules has resulted in an increase in the fiscal space for public capital investment spending in major Indian states. This analysis shows that by controlling other factors, there is a negative relationship between fiscal rules and public capital investment spending at the state level during the rules-based fiscal regime.

Suggested Citation

  • Chakraborty, Pinaki, 2017. "Federalism, Fiscal Space, and Public Investment Spending: Do Fiscal Rules Impose Hard Budget Constraints?," ADBI Working Papers 637, Asian Development Bank Institute.
    • Handle: RePEc:ris:adbiwp:0637
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    Cited by:

    1. R. K. Pattnaik, 2019. "Indian fiscal federalism: a study of factors affecting resource position of the state governments," Journal of Social and Economic Development, Springer;Institute for Social and Economic Change, vol. 21(2), pages 191-211, December.
    2. Purnamita Dasgupta & Bishwanath Goldar, 2018. "Costing for Elevation in Development Expenditure: Illustrative Evidence from India," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 16(3), pages 811-830, September.
    3. Rahul Pathak, 2023. "Do Subnational Fiscal Rules Reduce Public Investment? The Case of Fiscal Responsibility Laws in India," Public Finance Review, , vol. 51(3), pages 315-338, May.

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    More about this item

    Keywords

    federalism; fiscal space; fiscal rules; public investment; public spending; fiscal rules; budget constraints; Arellano Bond Panel estimation; spending inertia;
    All these keywords.

    JEL classification:

    • H00 - Public Economics - - General - - - General
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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