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Targeting Public Expenditure for Fiscal Consolidation in India

Author Affiliations

  • 1Central University of Kashmir, Srinagar, Jammu and Kashmir, India

Int. Res. J. Social Sci., Volume 5, Issue (3), Pages 59-66, March,14 (2016)

Abstract

The present economic scenario no more adheres to Ricardian Equivalence Hypothesis (REH) wherein we could be indifferent towards size of fiscal deficit. As such there is need to adjust the fiscal levers in a manner so as to ensure a moderate level of fiscal deficit. Although E. Domar suggests that economies need to take care only of growth rate which will stabilize the debt burden at its own, that does not mean fiscal deficit should be allowed to swell to any extent and people should be burdened with all ill effects of higher fiscal deficit. With this view being admitted by policy makers, a common remedy proposed for bringing down the fiscal deficit and consequent debt burden this is to bring about a reduction in various kinds of public expenditures. In this paper an attempt is made to develop a mathematical model to demonstrate the conditions and inequalities that will govern the behavior of fiscal deficit to GDP ratio with changes in public expenditures. Paper reveals that any decrease in various kinds of public expenditures brought about with an intention to bring down fiscal deficit to GDP ratio will ultimately result in increase in this ratio.

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