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Impact of Fiscal Policy Shocks on the Indian EconomySwati Yadav , V.Upadhyay , Seema Sharma

AbstractIn this paper, we analyse the impact of fiscal shocks on the Indian economy using structural vector autoregression SVAR methodology. The study uses quarterly data for the period 1997Q1 to 2009Q2. Two different identification schemes have been used to assess the effects of shocks to government spending and tax revenues on output. The recursive scheme is based on the Cholesky decomposition and the second identification scheme Blanchard and Perrotti 1999 technique of using information on tax system to identify the SVAR model. We find that the impulse responses obtained from both identification schemes behave in a similar fashion but the value of multipliers differs. Also the shock to tax variable has a bigger impact on GDP than the government spending shock. In the extended four variable VAR model the effects of fiscal shocks on private consumption has been assessed using the recursive identification scheme. Findings indicate that the tax variable has larger impact on private consumption as compared to the government spending variable. In the short run the impact of expansionary fiscal shocks follow Keynesian tradition but the long run response is mixed.

Item Type: MPRA Paper -

Original Title: Impact of fiscal policy shocks on the Indian economy-

Language: English-

Keywords: SVAR, Fiscal shocks, Multipliers-

Subjects: E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models > E12 - Keynes ; Keynesian ; Post-KeynesianE - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles-

Autor: Yadav, Swati


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