Abstract

In this paper, the relationship between the three major fiscal indicators: central government revenues, development expenditure of the Central government and real GDP in India has been established for the period 1980-2013. The vector autoregressive model is used for studying the relationship and the direction of causality between the variables determined using the Granger causality test. Granger causality test shows that there is causality running from growth of central government revenue to growth of central government development expenditure supporting the tax spend hypothesis. Also, GDP growth is granger causing the growth of revenues of the central government but the causality in the reverse direction is not true.

Author: R. Ahalya

Received on: January, 2018

Accepted on: March, 2018