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Growth Maximizing Fiscal Rule Targets In India

Author

Listed:
  • KRISHANU PRADHAN

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

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.

Suggested Citation

  • Krishanu Pradhan, 2022. "Growth Maximizing Fiscal Rule Targets In India," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 67(06), pages 2129-2147, December.
    • Handle: RePEc:wsi:serxxx:v:67:y:2022:i:06:n:s021759081950067x
    DOI: 10.1142/S021759081950067X
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    More about this item

    Keywords

    Public debt; fiscal deficit; macroeconomic stability; economic growth;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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