Fiscal Policy

MP A R Munich Personal RePEc Archive Is Fiscal Policy Contracyclical in India: An Empirical Analysis Chakraborty, Pinaki and Chakraborty, Lekha S National Institute of Public pay and Policy, New Delhi, India; , midpoint for Development Studies (JNU), India 2006 Online at http://mpra.ub.uni-muenchen.de/7604/ MPRA theme No. 7604, posted 10. March 2008 / 11:27 IS FISCAL constitution CONTRACYCLICAL IN INDIA: AN semiempirical ANALYSIS PINAKI CHAKRABORTY? LEKHA S CHAKRABORTY Abstract The paper empirically examines the validity of Keynesian philosophy of contracyclical variation in monetary constitution to the macroeconomic practise in India. The macroeconomic activity is proxied by output gap a concept specify to estimate the index of economic activity. Applying Johansens Full breeding Maximum Likelihood test of cointegration, it was found that there exists a long run, stable relationship between fiscal policy stance and macroeconomic activity. Further, the causality detection in unsymmetrical vector autoregression model revealed that there exists feedback mechanism between financial policy stance and output gap, which reinforces the Keynesian theory that fiscal stance is contracyclical in nature.

The policy implication of these results points to the fallacy of rule-based fiscal policy to contain fiscal deficit, based on the neo-classical precondition that fiscal deficit has detrimental effects through financial crowding out. The results reinforced the role of fiscal deficit non as an evil but as an instrument of unequal run demand management and also the significance of pith priming. [JEL Code: E6, C5] [JEL Code: E6, C5] Key words: Fiscal stance, issue gap, Contracyclical fiscal policy, Stationarity, Cointegration, Asymmetric vector autoregression. Authors are Associate Professors, Centre for Development Studies, Prasanthnagar, Thirivananthapuram, Kerala, India. Email: pinaki@cds.ac.in ? 1 IS FISCAL POLICY CONTRACYCLICAL IN INDIA: AN EMPIRICAL ANALYSIS... If you want to get a full essay, order it on our website: Orderessay

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