Quantifying the cyclically adjusted fiscal stance for India. Issue 1 (2nd January 2016)

• Record Type: Journal Article
• Authors: Ghosh, Saurabh; Misra, Sangita
• Is Part Of: Macroeconomics and finance in emerging market economies. Volume 9:Issue 1(2016)
• Page Start: 1
• Page End: 17
• Publication Date: 2016-01-02
• Subjects: fiscal policy -- business cycle fluctuations -- cyclical adjustment -- emerging market -- potential output -- India; E60 -- H62 -- H69; Developing countries -- Economic policy -- Periodicals; Monetary policy -- Developing countries -- Periodicals; Finance -- Developing countries -- Periodicals; 330.91724
• DOI: 10.1080/17520843.2015.1085424
• Languages: English
• ISSNs: 1752-0843

Abstract

Abstract : Taking cue from recent debate in the literature, we attempt to disentangle cyclically adjusted fiscal balance (CAB) for India broadly using the methodology recommended by the IMF, an indigenous revenue elasticity for India and a range of potential output estimates. Our results indicate that after initial success in containing CAB, it increased considerably during the crisis period. Notwithstanding a positive output gap in the post-crisis period (2009–11) and subsequent increase in inflation, the CAB continued to be expansionary, with limited withdrawal of expansionary stance, albeit a reduction in fiscal impulse. This calls for further reforms and binding framework that can withstand business cycles.