Size of fiscal multipliers for major Indian states

Abstract

The study aims to analyze the fiscal multipliers in Indian states and assess the effectiveness of present fiscal policies in supporting economic growth. We use annual data from 1980 to 2021. Using the structural VAR framework, this study establishes the relationship between GDP, aggregate expenditure, and tax revenues in Indian states. We classify Indian states into five regions: Northern, Southern, West and Central, Eastern, and Northeastern. Our research reveals that the amount of fiscal multipliers differs significantly among regions of Indian states. From a policy standpoint, this study argues that fiscal policy measures can be carefully planned and implemented to maximize their impact on economic activity and reach the required multiplier effects within different Indian states.