2025/11/20 by S Antony, P. S. Renjith · 1 voice
Economics, Econometrics and Finance · Social Sciences · #Fiscal Policies and Political Economy #Fiscal Policy and Economic Growth #Local Government Finance and Decentralization
paper · doi:10.1080/13597566.2025.2587291
openalex created_date 2025/11/20 · openalex publication_date 2025/11/20 · openalex updated_date 2026/07/28
This study investigates how fiscal rules differently affects state-level fiscal behaviour and growth across India. Using a balanced panel of 18 states from 2000–2001 to 2021–2022, it explores the asymmetric effects of sub-national fiscal rules on public investment and economic performance. Employing expenditure response models, sub-national growth frameworks, and Non-linear Autoregressive Distributed Lag (NARDL) estimations, the analysis reveals that when the fiscal deficit–GSDP ratio exceeds the 3% limit mandated by state Fiscal Responsibility Legislations (FRLs), capital expenditure rises significantly. This suggests that additional borrowing often supports development and capital projects. The growth model confirms that fiscal flexibility enhances public investment and growth. While aggregate patterns broadly align with individual state results, notable heterogeneity exists. The study challenges the idea of a uniform fiscal target for all states, concluding that limited relaxation beyond the fiscal threshold for capital spending can stimulate public investment and economic expansion at the subnational level.