| Abstract | An accurate measure of the fiscal stance is of utmost importance because of its effects on internal demand and the potential inflationary consequences. The present study attempts to assess the fiscal stance of nineteen major States of India for the period 1994-2004 and its implications for inflation in the States. Fiscal Stance of the States under study has been captured through the Measure of Fiscal Impulse, which has been estimated using methodologies suggested by the international Monetary Fund (IMF) and the Organisation for Economic Cooperation and Development (OECD). The results broadly indicate that the majority of the Indian States had an expansionary fiscal stance for most of the years under study. Furthermore, the evidence gained from the panel GMM estimates indicate that the fiscal stance positively contributed to inflation in the States. The results further indicate that fiscal policy in the Indian states during 1994-2004 has been pro cyclical.
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