Girish Bahal, Assistant Professor, University of Western Australia
Anand Shrivastava, Assistant Professor, Azim Premji University
Controlling for monetary policy, government transfers are potentially inflationary. This, however, may not be true when the economy is demand constrained. 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.
Bahal, Girish and Anand Shrivastava.2019. “Fiscal Transfers and Inflation: Evidence from India.” Centre for Sustainable Employment Working Paper #26,Azim Premji University, Bangalore.