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Fiscal dominance in India: Through the windshield and the rearview mirror

Author

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  • Anshuman Kamila

    (Institute of Economic Growth, Delhi)

Abstract

Theoretical works have pointed at the potentially damaging impacts of fiscal dominance, i.e. fiscal authority’s profligacy being accommodated by the monetary authority. Recent scholarship have highlighted to the contrary the arguably positive effects of such accommodation under certain circumstances. Ergo, a surgical snipping of the cord of joint working of monetary and fiscal policy for all times is not advisable. This article argues that in the Indian context, the impact of fiscal operations or expansionary fiscal policy may have proved counter-productive in the past but the recent time period have shown a clear break from the past trend. As such, monetary accommodation of fiscal activism under conditions where other engines of economic activity have cooled down emphatically is advisable.

Suggested Citation

  • Anshuman Kamila, 2021. "Fiscal dominance in India: Through the windshield and the rearview mirror," IEG Working Papers 429, Institute of Economic Growth.
    • Handle: RePEc:awe:wpaper:429
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    References listed on IDEAS

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    More about this item

    Keywords

    VECM; Cholesky impulse response; fiscal dominance; FRBM;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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