Section Article

THE RELATIONSHIP BETWEEN BUDGETARY POLICY AND INFLATION
Author(s): Rahul Yadav

Abstract
The relationship between budgetary policy and inflation represents one of the most fundamental interactions in macroeconomic theory and public finance. Budgetary policy expressed through government expenditure and taxation decisions directly influences aggregate demand monetary conditions investment patterns production capacity and public expectations. Inflation in turn reflects the overall rise in price levels resulting from demand–supply imbalances cost-push pressures monetary expansion or structural rigidities in an economy. This research examines how government budgets—whether expansionary or contractionary—shape inflationary outcomes in developing and emerging economies with specific attention to the mechanisms through which fiscal deficits public debt deficit financing public spending composition and tax structures influence price stability. Drawing upon literature published up to 2018 the study explores the theoretical foundations of fiscal–inflation dynamics including Keynesian monetarist structuralist and rational-expectations perspectives. The analysis reveals that while expansionary budgets may stimulate growth persistent fiscal deficits financed through borrowing or money creation tend to generate inflationary pressures especially in economies with supply constraints. Conversely contractionary budgets may curb inflation but at the cost of reduced public investment and slower economic growth. Ultimately the study argues that a balanced and disciplined budgetary framework—aligned with sustainable public finance and supported by productive expenditure—remains essential for maintaining long-term inflation stability.