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An Anatomical Investigation Into the Econometric Features of Key Fiscal Variables:An Exercise in Fiscal Marksmanship
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This paper-which is in a macro vein-looks at the key fiscal variables, viz., Revenue, Expenditure and the resulting Deficits. There has been an ongoing debate about the forecasting accuracy of especially the deflicits in the general context of credible policy announcements. These issues-always important-have assumed even greater importance, now with the onset of liberalisation in the Indian economy. In this paper, we look at the econometric (unit ischolar_main, co-integration) properties of the relevant series and estimate the Error Correction Model (ECM) to test the improvement in forecasts. We also carry out rolling regression to ascertain the coefficient behavior and finally use the tool of stochastic control to study whether the character of uncertainty is such as to facilitate learning and hence help to improve fiscal marksmanship. The paper ends with suggestions for further research in this rather interesting area.
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