Does Fiscal Spending Promote Economic Growth in India? An Application of Toda-Yamamoto Causal Approach
Does Fiscal Spending Promote Economic Growth in India? An Application of Toda-Yamamoto Causal Approach

Summary/Abstract: After the 25 years of economic reform, a restless debate is still going on that is fiscal policy still has a major role to play in Indian economy or not ? This paper tries to find out the short run and long run relationship of fiscal spending with the growth of India. For estimation, we have applied Auto Regressive Distributed Lag (ARDL) model and augmented causality test of Toda-Yamamoto. Results reveal that Gross Fixed Capital Formation is positively related to growth in the long run. In Short run, Military expenditure, tax revenue and inflation are negatively associated. The Causal analysis reveals that (i) Growth causes gross fixed capital formation, (ii) Military expenditure causes growth, (iii) Growth causes tax revenues and (iv) Inflation causes growth. Based on the results, suitable policy measures also discussed in the last section of the paper.

• Details
• Contents