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Government expenditure in India: Composition, cyclicality and multipliers

Ashima Goyal and Bhavyaa Sharma
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Bhavyaa Sharma: Indira Gandhi Institute of Development Research

Indira Gandhi Institute of Development Research, Mumbai Working Papers from Indira Gandhi Institute of Development Research, Mumbai, India

Abstract: We first assess the fiscal space and cyclicality of total Indian Central Government expenditure and its major components. Next we estimate multipliers for total, capital, and revenue expenditure. We extend the Structural Vector Auto-Regression (SVAR) to include supply shocks and the monetary policy response sequentially and together. The long-run capex multiplier is much larger than the revex. Capex also reduces inflation more over the long-term. Despite this, capex is more volatile. Monetary policy accommodates capex and tightens in response to revex, but absence of active accommodation during supply shocks reduces the capex multiplier. Implications follow for fiscal-monetary coordination.

Keywords: Fiscal multiplier; SVAR; Revenue expenditure; Capital expenditure; Fiscal-Monetary coordination; Supply shocks (search for similar items in EconPapers)
JEL-codes: C32 E31 E62 E63 H50 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: 2015-12
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