GROWTH MAXIMIZING FISCAL RULE TARGETS IN INDIA

Krishanu Pradhan ()
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Krishanu Pradhan: Madras Institute of Development Studies (MIDS), 79, 2nd Main Road, Gandhi Nagar, Adyar Chennai - 600020, India

The Singapore Economic Review (SER), 2022, vol. 67, issue 06, 2129-2147

Abstract: The objective of this paper is to obtain the growth optimizing public debt to GDP ratio (d*), based on estimated output elasticity (α) of public sector capital under the golden rule of budgetary deficit. After conducting unit root tests and cointegration analysis, value of α which is estimated under OLS, CLS and FMOLS, hovers around 0.281–0.29. Hence, the computed value of d* stands around 65–67% of GDP; modestly lower than the current value (73% in 2016). Since large revenue deficit has been persisting, effective value of d* would be even lower. Fiscal tightening, especially reducing revenue deficit and offloading the persistently loss making PSUs would be important for macroeconomic stability and accelerating economic growth.

Keywords: Public debt; fiscal deficit; macroeconomic stability; economic growth (search for similar items in EconPapers)
JEL-codes: E62 H60 H62 H63 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1142/S021759081950067X

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