Fiscal Transfers and Inflation: Evidence from India

Author
Girish Bahal, Anand Shrivastava
Content Type
Working Paper
Institution
Centre for Sustainable Employment, Azim Premji University
Abstract
Controlling for monetary policy, government transfers are potentially inflationary. This, however, may not be true when the economy is demandconstrained. Using a panel data of 17 Indian states over 30 years, we show that government transfers via welfare programs do not lead to inflation. For identification, we use a narrative shock series of transfer spending that is based on the introduction of new welfare programs. We then look at a specific program, NREGA, which has been shown to increase rural wages, and show that its implementation did not increase inflation.
Topic
Economics, Government, Labor Issues, Monetary Policy, Employment, Inflation, Demand
Political Geography
India