A Macro-Econometric VAR Model of India Incorporating Black Income

Are there any interrelationships between black income and macroeconomic variables? This question is the main motivation behind this study. The study finds that black income in India influences her key macroeconomic variables such as the consumption, investment, interest rate and inflation rate. The Bounds test of Cointegration and the Vector Error Correction analysis done in the study demonstrate that black income and the mentioned macroeconomic variables are cointegrated. Besides, the study also demonstrates using Granger causality in a VARX framework that there are interrelationships between black income and the mentioned macroeconomic variables. Black income has lagged impact on itself and on investment. Increases in tax rate and government expenditure increase black income. One of the policy conclusions of the study is that black income should be factored-in in the macroeconomic policy formulation in India.