Fiscal dominance in India: Through the windshield and the rearview mirror

Anshuman Kamila (kamila.anshuman@gmail.com)
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Anshuman Kamila: Institute of Economic Growth, Delhi

No 429, IEG Working Papers from Institute of Economic Growth

Abstract: Theoretical works have pointed at the potentially damaging impacts of fiscal dominance, i.e. fiscal authority’s profligacy being accommodated by the monetary authority. Recent scholarship have highlighted to the contrary the arguably positive effects of such accommodation under certain circumstances. Ergo, a surgical snipping of the cord of joint working of monetary and fiscal policy for all times is not advisable. This article argues that in the Indian context, the impact of fiscal operations or expansionary fiscal policy may have proved counter-productive in the past but the recent time period have shown a clear break from the past trend. As such, monetary accommodation of fiscal activism under conditions where other engines of economic activity have cooled down emphatically is advisable.

Keywords: VECM; Cholesky impulse response; fiscal dominance; FRBM (search for similar items in EconPapers)
JEL-codes: E52 E62 H62 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2021-04
New Economics Papers: this item is included in nep-mac and nep-mon
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Published as Institute of Economic Growth, Delhi, April 2021, pages 1-24

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Persistent link: https://EconPapers.repec.org/RePEc:awe:wpaper:429

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