Federalism, Fiscal Space, and Public Investment Spending: Do Fiscal Rules Impose Hard Budget Constraints?

Levy Economics Institute, Working Papers Series

30 Pages Posted: 28 Aug 2016

See all articles by Pinaki Chakraborty

Pinaki Chakraborty

National Institute of Public Finance and Policy; Bard College - The Levy Economics Institute

Multiple version iconThere are 2 versions of this paper

Date Written: August 26, 2016

Abstract

The primary objective of rule-based fiscal legislation at the subnational level in India is to achieve debt sustainability by placing a ceiling on borrowing and the use of borrowed resources for public capital investment by phasing out deficits in the budget revenue account. This paper examines whether the application of fiscal rules has contributed to an increase in fiscal space for public capital investment spending in major Indian states. Our analysis shows that, controlling for other factors, there is a negative relationship between fiscal rules and public capital investment spending at the state level under the rule-based fiscal regime.

Keywords: Fiscal Deficit, Revenue Deficit, Fiscal Rule

JEL Classification: H00, H6

Suggested Citation

Chakraborty, Pinaki, Federalism, Fiscal Space, and Public Investment Spending: Do Fiscal Rules Impose Hard Budget Constraints? (August 26, 2016). Levy Economics Institute, Working Papers Series. Available at SSRN: https://ssrn.com/abstract=2830566 or http://dx.doi.org/10.2139/ssrn.2830566

Pinaki Chakraborty (Contact Author)

National Institute of Public Finance and Policy ( email )

18/2, Satsang Vihar Marg
New Delhi, 110067
India

Bard College - The Levy Economics Institute ( email )

Blithewood
Annandale-on-Hudson, NY 12504-5000

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