The Budget Deficit and Macroeconomic Performance: A Real-Financial Computable General Equilibrium Model for India

by C. W. Naastepad

Overview

In this book, the author C.W.M. Naastepad analyzes a problem afflicting most developing countries—that of reducing budget deficits while maintaining growth and keeping inflation and trade deficits in control. Using a real-financial computable equilibrium model, this problem has been analyzed in the Indian context.

Product Details

ISBN-13:	9780195648492
Publisher:	Oxford University Press
Publication date:	04/29/1999
Pages:	344
Product dimensions:	8.50(w) x 5.60(h) x 0.90(d)

Table of Contents

List of Abbreviations		xi
List of Figures		xii
List of Tables		xiii
Introduction		1	(1)
Background and research question		1	(1)
Relevance of the problem to India		2	(2)
Scientific relevance		4	(1)
Outline of the study		5	(9)
The role of the state in economic theory		14	(16)
Political economy		14	(1)
Surplus-based theories		15	(2)
The rise of supply and demand theories or early neoclassical thinking		17	(1)
The end of laissez-faire		18	(1)
Economic policy in the neoclassical model		19	(2)
IS/LM and the Keynesian-neoclassical synthesis		21	(1)
Monetarism		22	(2)
After Keynes: Post-Keynesians		24	(2)
Rational expectations and New Classical Economics		26	(1)
Conclusions		27	(3)
India 1980-1995		30	(41)
Introduction		30	(1)
The growth of macroeconomic imbalances 1980-1990: evidence		31	(2)
Macroeconomic indicators		31	(1)
Saving-investment balances		32	(1)
The logic behind stabilisation and structural reform		33	(3)
Contents of the reform programme in India		36	(5)
Fiscal reforms		36	(2)
Trade liberalisation and industrial policy reform		38	(1)
Financial sector reforms		38	(3)
Macroeconomic performance 1990/91-1994/95		41	(2)
The nature of the imbalances: alternative views		43	(6)
Conclusions		49	(22)
Tables		51	(20)
A review of earlier model studies of fiscal policy		71	(20)
Introduction		71	(1)
A survey of existing real-financial models for India		72	(15)
K. Krishnamurty 1985		72	(2)
D.K. Ratha 1987		74	(3)
C. Rangarajan and R.R. Arif 1990		77	(3)
National Council of Applied Economic Research		80	(2)
B.B. Bhattacharya, R.B. Barman and A.K. Nag 1994		82	(3)
K. Sen, T. Roy, R. Krishnan and A. Mundlay 1996		85	(2)
Conclusions and suggestions for a new model		87	(4)
The basic model		91	(17)
Introduction		91	(1)
Basic relations		91	(4)
Alternative fiscal policy regimes		95	(5)
Conclusions and proposed extensions		100	(8)
Appendix 4.1		102	(2)
Appendix 4.2		104	(3)
Appendix 4.3		107	(1)
A Short-run macroeconomic CGE model		108	(13)
Introduction		108	(1)
The model		108	(6)
Data set for the short-run macro-model		114	(2)
Fiscal policy experiments		116	(3)
Direct tax increase		116	(1)
Indirect tax increase		117	(2)
Reduction in public expenditure		119	(1)
Limitations and possible extensions		119	(1)
Summary and conclusions		119	(2)
A stylised real-financial model		121	(15)
Introduction		121	(1)
The analytical framework		121	(2)
The model in operation		123	(8)
Two possible credit regimes		123	(2)
Policy experiments		125	(6)
Conclusions		131	(5)
Appendix 6.1		133	(1)
Appendix 6.2		133	(1)
Appendix 6.3		134	(2)
The data base for the real-finanacial model		136	(61)
The construction of a real Social Accounting Matrix		136	(5)
National accounts		136	(3)
Input-output transactions		139	(2)
A linear expenditure system		141	(2)
The capital and inventory coefficients matrices		143	(2)
Financial flows in the Indian economy		145	(3)
Construction of an intersectoral flow of funds matrix		148	(1)
Matching real and financial data		149	(1)
A symbolic Financial Social Accounting Matrix		149	(2)
A Real-Financial SAM		151	(1)
National balance sheets		152	(2)
From SAM to model		154	(1)
Estimated equations		155	(5)
Investment functions		155	(4)
Consumption of infrastructural goods		159	(1)
Wage indexation		159	(1)
Final imports		160	(1)
Computed parameters		160	(37)
Saving and direct tax rates		160	(1)
Mark-up rates		161	(1)
Indirect tax rates		161	(1)
Sectoral production capacities		161	(1)
Currency demand		162	(1)
Credit demand coefficients		162	(3)
Tables		165	(32)
A real-financial CGE model for the short term		197	(34)
Introduction		197	(1)
The multi-sector real-financial model in brif		197	(3)
A multi-sector real-financial CGE model for India		200	(8)
Equations for the real side		200	(2)
Equations for the financial side		202	(6)
Real-financial interactions		208	(23)
Demand and supply		208	(2)
The solution procedure		210	(2)
Possible solutions		212	(2)
Tables		214	(14)
Appendix 8.1		228	(3)
Additional data for the multi-period real-financial model		231	(12)
Introduction		231	(1)
Static and dynamic calibration		231	(1)
Calibration of the static model		231	(1)
Calibration of the base-run time path		232	(1)
The model's time path: data and main assumptions		232	(3)
Exogenous and policy variables and parameters		233	(1)
Endogenous variables		234	(1)
Comparison of base-run results with actuals		235	(8)
Tables		236	(7)
Macroeconomic adjustment in the short run		243	(54)
Introduction		243	(1)
Direct and indirect tax increases		244	(6)
Increase in the rate of tax on agricultural income		244	(2)
Increase in the rate of tax on wage income		246	(1)
Increase in the rate of tax on mark-up income		247	(1)
Increase in the domestic indirect tax rate		248	(2)
Debt financing and expenditure reduction		250	(5)
A debt financing scenario		251	(3)
Current government expenditure reduction		254	(1)
Sensitivity analysis		255	(3)
Credit demand coefficients		256	(1)
Crowding out or in		257	(1)
The experiments compared		258	(5)
Saving-investment balances		258	(3)
Implications for public finance		261	(2)
Instruments and targets		263	(7)
Trade-offs between output, prices and international trade		263	(3)
Ranking the policies in terms of their effects on the targets		266	(4)
Model mechanisms		270	(3)
Main features of the model responsible for its results		270	(2)
Comparison with the real macroeconomic model		272	(1)
Conclusions: Implications for stabilisation policy		273	(24)
Tables		278	(15)
Figures		293	(4)
Fiscal dynamics		297	(16)
Introduction		297	(1)
Expansion through higher public consumption		297	(2)
Expansion and stabilisation through higher public investment		299	(3)
Selection of an appropriate fiscal policy		302	(11)
Tables		305	(8)
Conclusions		313	(8)
Background		313	(1)
Channels of transmission of fiscal policy		314	(2)
Macroeconomic effects of fiscal policy		316	(3)
To conclude		319	(2)
References		321