FISCAL IMPULSE AND SECTORAL OUTPUT – EVIDENCE FROM INDIAN STATES

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By: GAUTAM NEGI
JEL: E620
Keywords: fiscal impulse, output, growth, GMM.

The study covering the states of India for the period 2005 up to 2020 examines the growth effect of fiscal impulse on sectoral output. Gross value added of sectors is taken as the dependent variable while fiscal impulse as a ratio of the state domestic product has been taken as the explanatory variable. Four control variables are additional included. The study employs the generalized method of moments (GMM) for estimation. For industry and the services sector, growth effect of fiscal impulse is found to be positive and significant while for agriculture sector the effect is not significant. A sample split of states reveal developed states to be benefitting more from the growth effect of fiscal impulse as compared to the lesser developed states. The study contributes to the literature on fiscal policy and growth among the states of India.