Options and Strategies for Fiscal Consolidation in India

Author/Editor:

Sampawende J Tapsoba

Publication Date:

May 29, 2013

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

The paper uses a multi-region DSGE model to quantify the macroeconomic implications of three adjustment scenarios for India: growth-friendly, social-friendly, and a benchmark case centered on bringing down unproductive spending and strengthening the consumption tax. Simulations indicate that fiscal consolidation yields considerable long-term benefits but also entails output costs in the near term. The scenarios in which deficit reduction is accompanied by greater investment and social spending lead to better results than the benchmark case. The consolidation package alone is not enough to maximize net gains. Other factors, such as the pace and the credibility of consolidation, the concomitant implementation of structural reforms, and global economic conditions, play a critical role in the success of fiscal consolidation.

Series:

Working Paper No. 2013/127

Subject:

Consumption taxes Expenditure Fiscal consolidation Fiscal policy Public investment spending Revenue administration Taxes

English

Publication Date:

May 29, 2013

ISBN/ISSN:

9781484382257/1018-5941

Stock No:

WPIEA2013127

Pages:

26

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