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Uncovering time variation in public expenditure multipliers: new evidence

Author

Listed:
  • Paras Sachdeva

    (Indian Institute of Technology Kanpur)

  • Wasim Ahmad

    (India Observatory)

  • N. R. Bhanumurthy

    (National Institute of Public Finance and Policy
    Bengaluru Dr. B. R. Ambedkar School of Economics University)

Abstract

The paper provides fresh evidence on the dynamics of public expenditure multipliers and the factors explaining them. The findings of this paper may facilitate the policymakers in effectively framing fiscal policy to expedite economic stabilisation and uplift economic growth. The paper proceeds with computing the time-varying public expenditure multipliers by employing the time-varying parameter–vector autoregressive (TVP–VAR) model on the Indian quarterly data set between 1997Q1 and 2019Q4. It then examines the role of structural factors in explaining the time variation in public expenditure multipliers. The empirical investigation reveals the heterogeneity in time-varying transmission and effectiveness of revenue capital and total expenditure shocks. The study further finds the adverse effects of fiscal instability and trade openness on public expenditure multipliers. The financial development and propensity to consume augment the public expenditure multiplier values. The findings also provide insights into the periodic impact of expenditure multipliers, which is relevant for policymakers.

Suggested Citation

  • Paras Sachdeva & Wasim Ahmad & N. R. Bhanumurthy, 2023. "Uncovering time variation in public expenditure multipliers: new evidence," Indian Economic Review, Springer, vol. 58(2), pages 445-483, September.
    • Handle: RePEc:spr:inecre:v:58:y:2023:i:2:d:10.1007_s41775-023-00175-y
    DOI: 10.1007/s41775-023-00175-y
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    Cited by:

    1. Sachdeva, Paras & Ahmad, Wasim, 2024. "Fiscal and monetary policy regimes: New evidence from India," Economic Modelling, Elsevier, vol. 139(C).
    2. N. Kundan Kishor & Alexandru Minea & Gurnain Kaur Pasricha, 2023. "Introduction to the special issue "Macroeconomic Policy in Turbulent Times in EMEs"," Indian Economic Review, Springer, vol. 58(2), pages 253-260, September.

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    More about this item

    Keywords

    Indian economy; Fiscal policy; Time-varying fiscal multiplier; TVP–VAR;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General

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