Macro/Finance Group, NIPFP

This paper analyses the cyclical nature of fiscal policy in South Asian economies. Drawing on the recent literature, we assess whether these economies have graduated to a counter-cyclical fiscal policy in the recent period. We find that fiscal policy is procyclical in most of the South Asian economies. Our analysis shows that the evidence of graduation to a counter-cyclical fiscal policy is weak for South- Asian economies. Our findings are robust to alternative methods of extracting the cyclical component. This has implications for macro- stabilisation policies in these countries and warrants a rethink of the fiscal policy framework.