A DYNAMIC ECONOMETRIC ASSESSMENT OF FISCAL DEFICIT PRESSURES ON LONG-TERM CAPITAL FORMATION IN THE INDIAN ECONOMY: AN INTERTEMPORAL ANALYSIS FRAMEWORK

Authors

  • Javier Hernández

    Department of Data Science, National Autonomous University of Mexico, Mexico City, Mexico

    Author

  • Isabella Torres

    Department of Computer Engineering, Monterrey Institute of Technology, Monterrey, Mexico

    Author

Keywords:
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Abstract

This study examines the dynamic relationship between fiscal deficits and long-term capital formation in India through an intertemporal econometric framework. The persistent concern in macroeconomic policy revolves around whether rising fiscal deficits stimulate or constrain capital accumulation by influencing private investment behavior, interest rates, and overall macroeconomic stability. Drawing on Keynesian, neoclassical, and crowding-out theories, the study synthesizes empirical and theoretical insights to evaluate how fiscal imbalances shape investment dynamics in developing economies, particularly India.
The methodological approach is grounded in cointegration analysis and vector autoregressive (VAR/VECM) modeling frameworks to capture both short-run fluctuations and long-run equilibrium relationships. The study aligns with advanced time-series methodologies, particularly the Johansen cointegration approach (Johansen, 1995), to identify structural relationships among fiscal deficit, private investment, and capital formation. The theoretical foundation is strengthened by causality frameworks and dynamic impulse response mechanisms that explain transmission channels.
Findings from the synthesized literature suggest that fiscal deficits may exert both crowding-in and crowding-out effects depending on macroeconomic conditions, fiscal composition, and financial market depth. In India, evidence indicates a nuanced relationship where productive public expenditure may enhance capital formation, while persistent deficits tend to weaken private investment incentives over time.
The study contributes to the literature by providing an integrated intertemporal perspective on fiscal sustainability and investment behavior in emerging economies. It highlights policy trade-offs between fiscal expansion and capital formation efficiency, emphasizing the need for disciplined fiscal management and targeted public investment strategies.

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Published
2026-01-13
Issue
Vol. 14 No. 01 (2026): Volume 14 Issue 01
Section
Articles
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Copyright (c) 2026 Javier Hernández, Isabella Torres (Author)

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How to Cite

Javier Hernández, & Isabella Torres. (2026). A DYNAMIC ECONOMETRIC ASSESSMENT OF FISCAL DEFICIT PRESSURES ON LONG-TERM CAPITAL FORMATION IN THE INDIAN ECONOMY: AN INTERTEMPORAL ANALYSIS FRAMEWORK. IFSMRC African International Journal of Research in Management, 14(01), 1-8. https://ifsmrc.org/index.php/aijrm/article/view/60

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