Fiscal Deficit and Inflation: An empirical analysis for India (original) (raw)
Related papers
FISCAL DEFICIT AND INFLATION: WHAT CAUSES WHAT? THE CASE OF INDIA
ABSTRACT This study has made an attempt to examine the direction of causality among the fiscal deficit, government expenditure, money supply, and inflation. In the present study we have employed Dolado and Lütkepohl (DL)(1996) and standard Granger-causality approach to examine the direction of the causality among the test variables. However, we have found conflicting results for India.
Fiscal deficit, inflation and debt trap in India: an empirical analysis
Indian Journal of Economics and Development, 2019
The study is to examine the relationship between fiscal deficit and inflation in India for the period of 1981 to 2017 with the variables such as fiscal deficit, inflation, GDP, imports, money supply, capital inflow, exchange rate & interest rate and also is to find out the debt trap of the government.
STUDY ON INDIAN ECONOMY'S FISCAL DEFICIT AND MACRO-VARIABLES
isara solutions, 2022
The macroeconomics literature has always stated that there is a positive relationship between fiscal deficit and inflation i.e., as fiscal deficit increases, there is a rise in inflation; rationale behind it being that money supply leads to demand pull inflation, but it has not been examined to be true in various developing countries' cases, so carrying out empirical correlation between these two variables, for developing country-India becomes significant; in this research paper, the study is carried out for time period of 2011-12 to 2020-21 using correlation as a tool to find the relationship between gross fiscal deficit as % of GDP and inflation (WPI). A moderate level of positive correlation is found between the two variables for Indian economy, increase in money supply is moderately or to some extent is leading to the economic fact of "too much money chasing same commodity". Correlation value for gross fiscal deficit and GDP growth rate shows strong negative correlation. This contradicts the rationale for considering fiscal deficit and with further empirical research, it is found that the money supply injected in form of deficit financing gets absorbed in import expenditure, concluding non-existence of Ricardian Equivalence phenomenon.
Government Deficit and Inflation in India
2003
This study covering the period 1951-52 to 1999-2000 finds that government deficit has been an important cause for long-run inflationary trend in India. The estimates in the study, however, suggest that there is an optimal level of monetisation for a given level of government deficit and refutes the concern that monetisation of deficit is always inflationary. This is not to suggest in any way that there is more scope to finance government deficit through monetisation. With the increase in capital inflows on which there is a certain degree of lack of control and the consequent predominance of net foreign exchange assets in reserve money, there is a need for greater fiscal restraint as well as monetary-fiscal coordination.
ABSTRACT The main objective of this paper is to examine the impact of fiscal deficit on inflation. The fiscal deficit in Pakistan continues to deteriorate and pose risks for sustainability of growth in the longer time horizon. This paper reexamines the issue in the light of broader data and such modeling approach which incorporates the key features of the theory. The paper establishes that within sample, inflation in Pakistan is mainly attributed to unsustainable fiscal deficit. The question whether fiscal deficit generates inflation in long term prespective or otherwise, Cointegration and Granger-causality test are employed. Secondary data from 1960 to 2010 show a strong relationship between fiscal deficit and inflation. Growth in deficits, whether measured by amounts or by deficit-output ratios, positively Granger causes inflation. So this study concluded that fiscal deficit displayed a powerful effect on inflation in Pakistan and there is need of coordination between monetary and fiscal policy to curb the inflation. From Engel-Granger cointegration test there exist a long run relationship between BD [budget deficit] and CPI [consumer price index]. Key Words: Fiscal deficit, inflation, GDP (gross domestic product) growth, BDGDP (budget deficit ratio to GDP growth), Pakistan Paper Type: Research Paper
Sources to Finance Fiscal Deficit and Their Impact on Inflation: A Case Study of Pakistan
The Pakistan Development Review
Theoretically, fiscal deficit is inflationary but the sources of financing fiscal deficit may differ in terms of their impact on inflation. Question arises that what should be the least inflation cost source of financing? This study attempts to answer this question and explore the long run relationship among the sources to finance fiscal deficit and inflation. In so doing, the estimations have been done in four stages on the basis of categorisation of the deficit financing heads. In the first stage it has been tested that fiscal deficit along with money supply are inflationary. In the second stage fiscal deficit is bifurcated into two components, domestic borrowing and external borrowing for fiscal deficit. In the third stage, domestic borrowing is further divided into two heads, bank and non-bank borrowing. While in the fourth and last stage, bank borrowing is further categorised into two parts, borrowing from scheduled banks and central bank, and non-bank borrowing which comprises...
Impact of Fiscal Deficit on Inflation in Sri Lanka: An Econometric Time Series Analysis
There is a relationship between the fiscal deficit and inflation, which was confirmed empirically in several studies conducted in many countries. Sri Lanka has been encountering the problem of inflation for the recent years. But in Sri Lanka, this proposition has not yet been studied scientifically. Therefore, this study was going to fill this gap. The objective of this study was to test the impact of fiscal deficit on inflation in Sri Lanka. For this study, the annual time series data were used during the period of 1959 to 2013. The fiscal deficit, exchange rate, government expenditures and import outflow were used as independent variables while the Colombo consumer price index was considered as dependent variable which was proxy variable for inflation of Sri Lanka. In addition, the multiple regressions model was used to test the impact of fiscal deficit on inflation. Based on the regression results, the fiscal deficit preserved the positive relationship with inflation in Sri Lanka at one percent significant level. Therefore, this study confirmed that the fiscal deficit accelerates the inflation in Sri Lanka.
Debt, Deficits and Inflation: An Application to the Public Finances of India
Journal of Public Economics 47, 171-205, 1992
The paper studies the solvency of the Indian public sector and the eventual monetization and inflation implied by stabilization of the debt—GNP ratio without any changes in the primary deficit. The nonstationarity of the discounted public debt suggests that indefinite continuation of the pattern of behavior reflected in the historical discounted debt process is inconsistent with the maintenance of solvency. This message is reinforced by the recent behavior of the debt—GNP ratio and the ratio of primary surplus plus seigniorage to GNP. Our estimates of the base money demand function suggest that even maximal use of seigniorage will not be sufficient to restore solvency.
ROLE OF INFLATION AND MONEY SUPPLY IN INDIA'S TWIN DEFICIT
International Journal of Current Research, 2016
The present study analyzes the role of inflation and money supply in India's current account deficit and fiscal deficit and assume that run relationship exists between current account deficit and fiscal deficit and money supply & inflation are mediating variables which affect current account balance. The research covers the 2000-01 to 2014 study starts with checking of normality with the help of unit root test of stationarity. To know the integrity between the variables Johansen estimates test has been used. At last impulse response function test has been applied.