Threshold level of fiscal deficit: Revisiting FRBMA limit in Indian states
By: Sethi, Dinabandhu et al
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Material type: 
BookPublisher: Journal of Social and Economic Development Description: 22(2), Dec, 2020: p.233-249.Subject(s): Fiscal deficit, Threshold regression, FRBM rule, Economic growth
In:
Journal of Social and Economic DevelopmentSummary: This paper examines whether the fiscal deficit limit of 3% as prescribed by the FRBMA is justified keeping in mind the increasing spending requirement and economic growth of Indian states? The study uses a panel data framework of taking sixteen non-special category states of India for the period over 2001–2002 to 2016–2017. This paper is the first of its kind that uses a threshold regression model due to Khan and Senhadji (IMF Staff Papers 48(1):1–21, 2001) to find the threshold level of fiscal deficit. The empirical findings show that the threshold level of fiscal deficit in sixteen states taken together is found to be 3%, which is in the line of prescribed limit of FRBM act. But at disaggregated level, it is observed that in middle- and low-income states the threshold level of fiscal deficit is 3.9% and 3.5%, respectively. This suggests that states can go for some additional percent of fiscal deficit above the limit prescribed by FRBMA. Therefore, the fiscal deficit limit of 3% needs to be revisited to give more fiscal room to the Indian states. – Reproduced
| Item type | Current location | Call number | Vol info | Status | Date due | Barcode |
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Articles
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Indian Institute of Public Administration | 22(2), Dec, 2020: p.233-249 | Available | AR124668 |
This paper examines whether the fiscal deficit limit of 3% as prescribed by the FRBMA is justified keeping in mind the increasing spending requirement and economic growth of Indian states? The study uses a panel data framework of taking sixteen non-special category states of India for the period over 2001–2002 to 2016–2017. This paper is the first of its kind that uses a threshold regression model due to Khan and Senhadji (IMF Staff Papers 48(1):1–21, 2001) to find the threshold level of fiscal deficit. The empirical findings show that the threshold level of fiscal deficit in sixteen states taken together is found to be 3%, which is in the line of prescribed limit of FRBM act. But at disaggregated level, it is observed that in middle- and low-income states the threshold level of fiscal deficit is 3.9% and 3.5%, respectively. This suggests that states can go for some additional percent of fiscal deficit above the limit prescribed by FRBMA. Therefore, the fiscal deficit limit of 3% needs to be revisited to give more fiscal room to the Indian states. – Reproduced
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