Fiscal Multiplier
General Economics Advancedराजकोषीय गुणक
Definition
The fiscal multiplier measures how much GDP increases for every rupee of government spending or tax cut. A multiplier above 1 means government spending generates more than proportionate economic activity. Capital expenditure typically has a higher multiplier (1.5-2x) than revenue expenditure (0.5-1x) because it creates productive assets.
Formula
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Why Fiscal Multiplier Matters
Understanding fiscal multiplier is essential for anyone following government finances, preparing for competitive exams, or analysing India's economic policy. This concept directly affects how the government allocates resources and plans its fiscal strategy.
In the context of India's Union Budget 2026-27, with a total size of Rs 53.47 lakh crore, terms like fiscal multiplier help citizens and analysts evaluate whether the government is on the right fiscal path. The numbers in the budget are only meaningful when one understands the underlying concepts.
For UPSC aspirants, fiscal multiplier is frequently tested in both Prelims and Mains, particularly in Paper III (Economic Development). For CA and MBA students, this concept appears in public finance and macroeconomics courses.
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