Arthshastra Indian Journal of Economics & Research

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Is Fiscal Policy Pro-Cyclical or Counter-Cyclical ? Evidence from India


Affiliations
1 Professor, Department of Finance, XIMB, Xavier University, Bhubaneswar - 751 013, Odisha, India
2 Research Associate, Centre of Excellence in Fiscal Policy and Taxation (CEFT), Xavier University, Bhubaneswar - 751 013, Odisha, India

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This study investigated the cyclicality of fiscal policy in India at the Centre, State, and combined Centre - State level by employing three alternative methods. The period of analysis extended from 1970-71 to 2013-14. In general, the study finds pro-cyclicality behavior of expenditure in case of India. Revenue expenditure, primary revenue expenditure, capital outlay, and total expenditure were found to be pro-cyclical at the Centre and combined Centre - State level. Capital outlay was found to have more pro-cyclicality as compared to other expenditure categories both at the Centre and combined Centre - State level. However, at the State level, capital outlay was not found to have any cyclical relation with output.

Keywords

Business Cycles, Fiscal Policy, Public Spending, Econometrics

C13, C23, E62

Paper Submission Date : November 28, 2016 ; Paper sent back for Revision : February 23, 2017 ; Paper Acceptance Date : March 21, 2017.

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  • Is Fiscal Policy Pro-Cyclical or Counter-Cyclical ? Evidence from India

Abstract Views: 187  |  PDF Views: 0

Authors

Asit Ranjan Mohanty
Professor, Department of Finance, XIMB, Xavier University, Bhubaneswar - 751 013, Odisha, India
Bibhuti Ranjan Mishra
Research Associate, Centre of Excellence in Fiscal Policy and Taxation (CEFT), Xavier University, Bhubaneswar - 751 013, Odisha, India

Abstract


This study investigated the cyclicality of fiscal policy in India at the Centre, State, and combined Centre - State level by employing three alternative methods. The period of analysis extended from 1970-71 to 2013-14. In general, the study finds pro-cyclicality behavior of expenditure in case of India. Revenue expenditure, primary revenue expenditure, capital outlay, and total expenditure were found to be pro-cyclical at the Centre and combined Centre - State level. Capital outlay was found to have more pro-cyclicality as compared to other expenditure categories both at the Centre and combined Centre - State level. However, at the State level, capital outlay was not found to have any cyclical relation with output.

Keywords


Business Cycles, Fiscal Policy, Public Spending, Econometrics

C13, C23, E62

Paper Submission Date : November 28, 2016 ; Paper sent back for Revision : February 23, 2017 ; Paper Acceptance Date : March 21, 2017.




DOI: https://doi.org/10.17010/aijer%2F2017%2Fv6i2%2F114124