
Contents
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4.1 Introduction 4.1 Introduction
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4.2 Measuring Potential Growth 4.2 Measuring Potential Growth
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4.3 Main Instruments of Fiscal Policy 4.3 Main Instruments of Fiscal Policy
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4.4 Fiscal Policy for Stabilization 4.4 Fiscal Policy for Stabilization
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4.5 Concluding Observations 4.5 Concluding Observations
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References References
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4 Fiscal Policy for Growth and Stabilization: Theory and Application in India
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Published:August 2024
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Abstract
Two major interlinked objectives of fiscal policy are to ensure that an economy reaches its potential growth consistent with full employment of its resources, and that volatility of growth around this optimal level is minimized. In this chapter, after summarizing alternative approaches to conceptualizing and measuring potential growth, an analysis of major fiscal policy instruments is undertaken with a view to highlighting the extent to which they can be used for uplifting growth in an economy. The use of fiscal policy instruments for stabilization is then discussed, focusing on their countercyclical role in minimizing the impact of economic cycles. The role of fiscal responsibility legislations (FRLs), as they evolved and are applied in India, is also discussed in the context of recent global economic slowdowns.
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