Size of Expenditure Multipliers for Indian States: Does the Level of Income and Public Debt Matter?

Raut, Dirghau and Raju, Swati (2019): Size of Expenditure Multipliers for Indian States: Does the Level of Income and Public Debt Matter?

Abstract

In this paper we apply panel vector error correction model to analyze the role of debt burden and income level in determining expenditure multipliers of Indian states. Our main results based on annual data from 1990-91 to 2015-16 suggest that the size of multiplier is sensitive to expenditure composition, debt level and the per capita income. The development expenditure multiplier is found to be 1.74 times of total expenditure multiplier. Further, the multipliers are found to be larger for low debt states than the high debt states, for both total expenditure and development expenditure. The impact of income on multiplier is, however, asymmetric across expenditures. While total expenditure multiplier is higher for low income states, development expenditure multiplier is found to be highest in high income states.

• Item Type: MPRA Paper
• Language: English
• Keywords: Fiscal policy, panel data, expenditure multipliers, dynamic fixed effect estimator
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C23 - Panel Data Models ; Spatio-temporal Models; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E62 - Fiscal Policy; H - Public Economics > H7 - State and Local Government ; Intergovernmental Relations > H72 - State and Local Budget and Expenditures

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