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Sustainable Debt Policies of Indian State Governments

Author

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  • P.S. Renjith

    (P.S. Renjith (corresponding author) is ICSSR Research Fellow, Madras School of Economics, Chennai, Tamil Nadu, India, e-mail: renjith@mse.ac.in)

  • K.R. Shanmugam

    (K.R. Shanmugam is Director, Madras School of Economics, Chennai, Tamil Nadu, India, e-mail: shanmugam@mse.ac.in)

Abstract

This study analyses the public debt sustainability issue of 20 major Indian states using the Bohn framework for panel data from 2005–2006 to 2014–2015. It employs regular panel data estimation procedures and the penalized spline (p-spline) technique. The results indicate that the primary balance of state governments responds positively to high public debt, so debt policies are successful in sustaining the debt situation of Indian states as a whole. However, at the individual level, debt is sustainable only in 12 states; in 8 states, debt is unsustainable and so these states require corrective action. These findings may be useful to policymakers and other stakeholders to formulate appropriate strategies to improve the debt situation of Indian states. JEL Classification: E62, H63, H72, H740

Suggested Citation

  • P.S. Renjith & K.R. Shanmugam, 2018. "Sustainable Debt Policies of Indian State Governments," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 12(2), pages 224-243, May.
    • Handle: RePEc:sae:mareco:v:12:y:2018:i:2:p:224-243
    DOI: 10.1177/0973801017753283
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    Cited by:

    1. Shiv Shankar & Pushpa Trivedi, 2023. "Assessing India’s fiscal sustainability considering debt–deficit and financing dynamics," Indian Economic Review, Springer, vol. 58(1), pages 41-70, June.
    2. K. R. Shanmugam & P.S. Renjith, 2022. "Empirical Analysis on Sustainability of Public Debt in Indian States," Working Papers 2022-235, Madras School of Economics,Chennai,India.
    3. Lawrence Ogbeifun & Olatunji Shobande, 2020. "Debt sustainability and the fiscal reaction function: evidence from MIST countries," Future Business Journal, Springer, vol. 6(1), pages 1-8, December.

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    More about this item

    Keywords

    Primary Balance; Sustainable Debt; Indian States; Bohn Framework;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing

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