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
Date Written: August 26, 2016
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: Suggested Citation