State-level Fiscal Multipliers in India: Local Fiscal Multiplier Approach

Somnath Sharma (), Deba Prasad Rath and Samir Ranjan Behera
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Somnath Sharma: Reserve Bank of India
Deba Prasad Rath: Reserve Bank of India
Samir Ranjan Behera: Reserve Bank of India

Journal of Quantitative Economics, 2024, vol. 22, issue 1, No 5, 102 pages

Abstract: Abstract Movements of fiscal multipliers of an economy have long assumed prominence in the fiscal policy literature in general and for States in particular, keeping in view their interconnectedness in terms of inter-State trade and migrations, notwithstanding the States having their own fiscal policies with considerable autonomy. The State economies have a strong interdependence, as the government spending in one State can easily spill over to other States. So far, there is no research in India that has considered spillover while estimating the State-level multiplier. This paper contributes to the literature by estimating State-level fiscal multipliers accounting for the spillover effects in terms of the impact of government expenditure on gross state domestic product (GSDP). A key insight that the paper also confirms is that the estimates of state-level fiscal multipliers are the same during cyclical upturns and downturns.

Keywords: Fiscal multiplier; Local Fiscal Multiplier; Sub-national fiscal policy; Interstate spillover (search for similar items in EconPapers)
JEL-codes: E62 H30 R50 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s40953-023-00379-2

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