Determinants of Indian Fiscal Deficit in NARDL Model
Author(s):
Debesh Bhowmik
In this paper the author showed the trends of fiscal deficit and examined the short run and the long run nexus between fiscal deficit and gross domestic product per capita, inflation rate (CPI), external debt (% of GDP), unemployment rate (% of labour force), income inequality (income share difference between top 10% and bottom 50%), and military expenditure respectively during 1950-51-2023-24 in India by applying Non-linear Auto Regressive Distributed Lag model. It found that the estimated NARDL (3,4,4,2,0,4,0,0,0,0,0,1) model revealed both positive and negative changes of GDP per capita, inflation rate, & external debt which produced both negative and positive impacts on fiscal deficit respectively. The positive and negative changes of unemployment, income inequality and defense expenditure created positive impact insignificantly. Cointegration equation showed convergent but relation between positive change in inflation at lag 1 is only significant on fiscal deficit and the rests are insignificant. The positive and negative changes in the long run are symmetrical that’s why the cumulative dynamic multiplier shocks from positive and negative changes from all determinants have created explosive symmetrical impacts on fiscal deficit. The model is stable, non-normal, heteroscedastic and serially correlated.
