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Structural Breaks, Unit Roots, and Cointegration: A Further Test of the Sustainability of the Indian Fiscal Deficit

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  • Raghbendra Jha
  • Anurag Sharma

Abstract

If public expenditure and public revenue are I (0), public debt is sustainable, but if these are I (1) and not cointegrated or have a cointegrating vector different from [1, -1], the public debt is said to be unsustainable. Extant work indicates that India’s public debt is unsustainable. The authors reinvestigate this issue by allowing for endogenous structural breaks for two data sets—the British period from 1871-1921 and the postindependence period from 1950-1997. Revenue and expenditure series are I (1) and cointegrated with regime shifts. Hence, Indian public debt may not be unsustainable.

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Bibliographic Info

Article provided by in its journal Public Finance Review.

Volume (Year): 32 (2004)
Issue (Month): 2 (March)
Pages: 196-219

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Handle: RePEc:sae:pubfin:v:32:y:2004:i:2:p:196-219

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Cited by:
  1. Loganathan, Nanthakumar & Mori Kogid & Suriyani Muhamad & Nor Haslina Mohamad Akhir, 2011. "Fiscal Adjustment And Dynamic Economics Performance: The Case Of Malaysia," Journal of Global Business and Economics, Global Research Agency, Global Research Agency, vol. 3(1), pages 1-10, July.
  2. Ananda Jayawickrama & Tilak Abeysinghe, 2006. "Sustainability Of Fiscal Deficits: The U.S. Experience 1929-2004," SCAPE Policy Research Working Paper Series, National University of Singapore, Department of Economics, SCAPE 05xx, National University of Singapore, Department of Economics, SCAPE.
  3. Raghbendra Jha, 2005. "Inflation Targeting In India: Issues And Prospects," CAMA Working Papers 2005-28, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  4. Tilak Abeysinghe & Ananda Jayawickrama, 2013. "A segmented trend model to assess fiscal sustainability: The US experience 1929–2009," Empirical Economics, Springer, Springer, vol. 44(3), pages 1129-1141, June.
  5. Rangarajan, C. & Srivastava, D.K., 2005. "Fiscal deficits and government debt in India: Implications for growth and stabilisation," Working Papers, National Institute of Public Finance and Policy 05/35, National Institute of Public Finance and Policy.
  6. Sharma, Anurag & Jha, Raghbendra, 2012. "Fiscal deficits, banking crises and policy reversal in a semi-open economy," Economic Modelling, Elsevier, Elsevier, vol. 29(2), pages 271-282.
  7. Liu, Tie-Ying & Su, Chi-Wei & Jiang, Xu-Zhao, 2014. "Is fiscal policy stationary in China? A regional study by local government," Economic Modelling, Elsevier, Elsevier, vol. 37(C), pages 492-499.

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