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The prime objective of this study is to analysis the impact of fiscal policy on the economy of India. For this purpose, we have taken the data from 1981 to 2010 and applied the Johansen co integration test, error correction model and variance decomposition model. Our results are showing that there is long run association between GDP and other variables. The prime objective of the fiscal policy is to deal with taxations and monetary policy is helpful to control the money supply. Consequently, Fiscal policy is the way of increase or decrease the inflation. Fiscal policy is the tool to control the fiscal deficit. To run the economy, there is need of proper fiscal policy. Our paper is trying to show that fiscal policy has always long run phenomena on the growth of the economy.