Definition
Fiscal Multiplier
The fiscal multiplier measures how much total economic output rises for each rupee of additional government spending.
A fiscal multiplier greater than one means a rupee of government spending generates more than a rupee of GDP, as the initial outlay ripples through wages, contracts and consumption. In India, capital expenditure is generally estimated to have a higher multiplier than revenue expenditure, which is a key argument behind the capex push.
Multipliers are not fixed — they tend to be larger when the economy has slack and interest rates are low, and smaller when resources are fully employed. Policymakers use multiplier estimates to decide where to channel limited budgetary resources for maximum growth impact.
Related terms
- Revenue vs Capital ExpenditureRevenue expenditure covers the government's recurring running costs, while capital expenditure creates lasting assets or reduces liabilities.
- Capex PushA capex push is a deliberate budgetary strategy of sharply increasing government capital expenditure on infrastructure to spur growth and attract private investment.
- Fiscal StimulusFiscal stimulus is a temporary increase in government spending or cut in taxes designed to boost demand during an economic slowdown.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.