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Fiscal transfers and inflation: Evidence from India

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  • Girish Bahal

    (Economics Discipline, Business School, University of Western Australia)

  • Anand Shrivastava

    (Azim Premji University, Bangalore, India)

Abstract

Controlling for monetary policy, government transfers are potentially inflationary. This, however, may not be true when the economy is demand-constrained. Using panel data of 17 Indian states over 30 years, we show that government transfers via welfare programs do not lead to inflation. For identification, we use a narrative shock series of transfer spending based on the introduction of new welfare programs. We re-examine the relationship between government transfers and inflation by studying whether the recent implementation of India’s public workfare program, NREGA, had aggregate price effects. Using the phase-wise implementation design of the program, we confirm the absence of any association between higher program coverage and price inflation.
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Suggested Citation

  • Girish Bahal & Anand Shrivastava, 2020. "Fiscal transfers and inflation: Evidence from India," Economics Discussion / Working Papers 20-12, The University of Western Australia, Department of Economics.
    • Handle: RePEc:uwa:wpaper:20-12
    Note: MD5 = 98eee92f1b64932860e4e0b05964f575
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    More about this item

    Keywords

    Fiscal Transfers; Welfare programs; Government spending; Inflation;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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