Fiscal Policy and Economic Growth: A Study of Assam in North-East India

Abstract

Fiscal policy plays an important role in the growth of an economy. Specially in case of an underdeveloped state like Assam in North-East India, where the state is very much dependent on the public sector. This study analyses the impact of fiscal policy on the economic growth of Assam. For this purpose Augmented Dickey Fuller test is used to measure the stationary level of the variables. Johansen co-integration test is used to find out the long run relationship and Vector Error Correction model is used to find out the short term analysis and causality. The ADF test showed the variables to be non-stationary and long run relationship between the variables were found using the co-integration test. VECM model showed expenditure to have significant impact on the growth of the state, while short run discrepancy in the revenue variable showed to be automatically adjusted.