ARDL Model of Fiscal Deficit of BIMAROU States in India

AUTHOR
Debesh Bhowmik *

KEYWORDS
State Fiscal Deficit, State Domestic Product per capita, tax revenue, interest payments, social sector expenditure, employment, Auto Regressive Distributed Lag

ABSTRACT
In this paper, author tries to evaluate the short run and long run relationships between state fiscal deficit of BIMAROU and its determinants of state domestic product per capita, tax revenue, interest payments, social sector expenditure during 1990-91-2023-24 by applying Auto Regressive Distributed Lag model and compared with quantile regression and Loess fitted lines. The paper found that state fiscal deficit is positively associated with state domestic product per capita, interest payments and social sector expenditure and inversely related with tax revenue and employment during long period. In the short run, fiscal deficit is negatively related with state domestic and interest payments while positively related with tax revenue and employment significantly. The model tends to converge to the equilibrium with the speed of adjustment of 157% per annum. The trend is downward and significant. The Bounds test is significant and Hausman test is accepted for pooled mean group. Residuals are not normally distributed as per Q-Q plots. Weighted residuals cross dependence test showed no cross-section dependence. In quantile regression, as Tou increases, the fiscal deficit of BIMAROU increases while state domestic product per capita, social sector expenditure and employment decrease but tax revenue and interest payment increase significantly. All Loess non-linear fitted lines between fiscal deficits and determinants have upward sloping till 2159.