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Has FRBM rule influenced fiscal deficit-growth nexus differently in India?

Dinabandhu Sethi, Asit Ranjan Mohanty and Avipsa Mohanty

Macroeconomics and Finance in Emerging Market Economies, 2020, vol. 13, issue 1, 53-66

Abstract: This paper examines the link between economic growth and fiscal deficit in India for the periods between 1970–71 to 2016–17 and 1970–71 to 2003–04. The study uses an autoregressive distributed lag (ARDL) bound testing model. To check for robustness, a fully modified ordinary least square is also used. The ARDL bound test confirms both long-run relationship between fiscal deficit and economic growth after accounting for capital formation, electricity consumption and inflation. We find that the fiscal deficit has an adverse impact on growth over both the periods. Therefore, implementation of FRBM Act, 2003 has not impacted fiscal deficit-growth nexus differently.

Date: 2020
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DOI: 10.1080/17520843.2019.1677736

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