The Challenge of Fiscal Adjustment in a Democracy: The Case of India

30 Pages Posted: 15 Feb 2006

See all articles by Ricardo Hausmann

Ricardo Hausmann

Harvard University - Harvard Kennedy School (HKS)

Catriona Purfield

International Monetary Fund (IMF)

Date Written: September 2004

Abstract

India`s fiscal problem has deep roots in its federal fiscal system, where multiple players find it difficult to coordinate adjustment. The size and closed nature of the Indian economy, aided by its deep domestic capital market and large captive pool of domestic savings, has disguised the cost of fiscal laxity and complicated the building of a consensus on reform. The new fiscal responsibility act establishes a new rules-based system to overcome this coordination failure. To strengthen the framework, we recommend an autonomous scorekeeper and the extension of similar rules to the state governments as part of a comprehensive reform of the federal system.

Keywords: Fiscal responsibility legislation, federal relations, fiscal deficits, debt

JEL Classification: E62, H11, H61, H74, H77

Suggested Citation

Hausmann, Ricardo and Purfield, Catriona, The Challenge of Fiscal Adjustment in a Democracy: The Case of India (September 2004). IMF Working Paper No. 04/168, Available at SSRN: https://ssrn.com/abstract=878993

Ricardo Hausmann (Contact Author)

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Mailbox 34
Cambridge, MA 02138
United States
617-496-3740 (Phone)
617-496-8753 (Fax)

HOME PAGE: http://www.hks.harvard.edu/about/faculty-staff-directory/ricardo-hausmann

Catriona Purfield

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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