IDEAS home Printed from https://ideas.repec.org/p/awe/wpaper/329.html
   My bibliography  Save this paper

Subnational-level Fiscal Health Stability and sustainability implications for Kerala, Punjab, and West Bengal

Author

Listed:
  • Nimai Das

    (Institute of Economic Growth, New Delhi.)

Abstract

The Government of India has recently announced that Kerala, Punjab, and West Bengal are fiscally unsound at the level of general category states. The study reviews this projection and assesses their financial stability and sustainability along the debt-deficit spiral over time. It finds their recent fiscal performance perilous, especially on the revenue account. In particular, West Bengal differs moderately from Punjab and Kerala in recent performance and in the long run trend of basic fiscal variables that lead to different implications in stability and sustainability. The study finds that a sharp rise in the revenue account gap caused fiscal deficit to grow steadily and hence a high-flying debt stock in all states during the late 1990s to the early 2000s. This enormous stock of outstanding debt emerged as a higher value of actual primary deficit from its stability level. Given that the rate of interest exceeded growth of output during this period, it increased debt stock above the level of primary deficit. None of the states however accomplished fiscal sustainability fully. Excepting West Bengal, they attained partial sustainability as their debt-deficit system slowly restores long run equilibrium. West Bengal is far away from sustainability because its future surpluses are not enough to service the debt. The study suggests that a sound adjustment in fiscal position on revenue account is essential for all states and that West Bengal needs special attention to achieve equilibrium in the long run.

Suggested Citation

  • Nimai Das, 2013. "Subnational-level Fiscal Health Stability and sustainability implications for Kerala, Punjab, and West Bengal," IEG Working Papers 329, Institute of Economic Growth.
    • Handle: RePEc:awe:wpaper:329
    as

    Download full text from publisher

    File URL: https://iegindia.org/upload/publication/Workpap/wp329.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Luigi Landolfo, 2008. "Assessing the Sustainability of Fiscal Policies: Empirical Evidence from the Euro Area and the United States," Journal of Applied Economics, Taylor & Francis Journals, vol. 11(2), pages 305-326, November.
    2. Hamilton, James D & Flavin, Marjorie A, 1986. "On the Limitations of Government Borrowing: A Framework for EmpiricalTesting," American Economic Review, American Economic Association, vol. 76(4), pages 808-819, September.
    3. Hakkio, Craig S & Rush, Mark, 1991. "Is the Budget Deficit "Too Large?"," Economic Inquiry, Western Economic Association International, vol. 29(3), pages 429-445, July.
    4. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
    5. Engsted, Tom & Gonzalo, Jesus & Haldrup, Niels, 1997. "Testing for multicointegration," Economics Letters, Elsevier, vol. 56(3), pages 259-266, November.
    6. Enrique G. Mendoza & P. Marcelo Oviedo, 2009. "Public Debt, Fiscal Solvency and Macroeconomic Uncertainty in Latin America The Cases of Brazil, Colombia, Costa Rica and Mexico," Economía Mexicana NUEVA ÉPOCA, CIDE, División de Economía, vol. 0(2), pages 133-173, July-Dece.
    7. Haug, Alfred A, 1995. "Has Federal Budget Deficit Policy Changed in Recent Years?," Economic Inquiry, Western Economic Association International, vol. 33(1), pages 104-118, January.
    8. Shin, Dong Wan & Kim, Hyun Jung, 1999. "Semiparametric Tests for Double Unit Roots Based on Symmetric Estimators," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(1), pages 67-73, January.
    9. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 103-126, October.
    10. Oscar Bajo Rubio & Carmen Díaz Roldán & Vicente Esteve, 2010. "On the sustainability of government deficits: Some long-term evidence for Spain, 1850-2000," Journal of Applied Economics, Universidad del CEMA, vol. 13, pages 263-281, November.
    11. Ali F. Darrat, 1998. "Tax and Spend, or Spend and Tax? An Inquiry into the Turkish Budgetary Process," Southern Economic Journal, John Wiley & Sons, vol. 64(4), pages 940-956, April.
    12. Merih Uctum & Thom Thurston & Remzi Uctum, 2006. "Public Debt, the Unit Root Hypothesis and Structural Breaks: A Multi‐Country Analysis," Economica, London School of Economics and Political Science, vol. 73(289), pages 129-156, February.
    13. Luigi Landolfo, 2008. "Assessing the sustainability of fiscal policies: Empirical evidence from the Euro Area and the United States," Journal of Applied Economics, Universidad del CEMA, vol. 11, pages 305-326, November.
    14. Raghbendra Jha & Anurag Sharma, 2004. "Structural Breaks, Unit Roots, and Cointegration: A Further Test of the Sustainability of the Indian Fiscal Deficit," Public Finance Review, , vol. 32(2), pages 196-219, March.
    15. Quintos, Carmela E, 1995. "Sustainability of the Deficit Process with Structural Shifts," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(4), pages 409-417, October.
    16. Haldrup, Niels, 1994. "The asymptotics of single-equation cointegration regressions with I(1) and I(2) variables," Journal of Econometrics, Elsevier, vol. 63(1), pages 153-181, July.
    17. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Maurya, Nagendra Kumar, 2014. "Debt sustainability of state finances of Uttar Pradesh government," MPRA Paper 55692, University Library of Munich, Germany.
    2. Das, Panchanan, 2016. "Debt Dynamics, Fiscal Deficit, and Stability in Government Borrowing in India: A Dynamic Panel Analysis," ADBI Working Papers 557, Asian Development Bank Institute.
    3. Narayan, Laxmi, 2015. "Some Aspects of Haryana State Finances –An Exploratory Analysis," MPRA Paper 64697, University Library of Munich, Germany, revised Apr 2015.
    4. Narayan, Laxmi, 2017. "Growth of Public Debt in Haryana – Dynamism or Misplaced Priorities," MPRA Paper 79431, University Library of Munich, Germany, revised 05 May 2017.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Nimai Das, 2015. "Subnational level fiscal health in India: stability and sustainability implications," Economic Change and Restructuring, Springer, vol. 48(1), pages 71-91, February.
    2. Chen, Shyh-Wei & Wu, An-Chi, 2018. "Is there a bubble component in government debt? New international evidence," International Review of Economics & Finance, Elsevier, vol. 58(C), pages 467-486.
    3. Escario, Regina & Gadea, María Dolores & Sabaté, Marcela, 2012. "Multicointegration, seigniorage and fiscal sustainability. Spain 1857–2000," Journal of Policy Modeling, Elsevier, vol. 34(2), pages 270-283.
    4. Regina Escario & Mar�a Dolores Gadea & Marcela Sabat�, 2009. "Government Solvency or just Pseudo-Sustainability? a Long-Run Multicointegration Approach for Spain," Documentos de Trabajo dt2009-07, Facultad de Ciencias Económicas y Empresariales, Universidad de Zaragoza.
    5. N. Bilkic & B. Carreras Painter & T. Gries, 2013. "Unsustainable sovereign debt—is the Euro crisis only the tip of the iceberg?," International Economics and Economic Policy, Springer, vol. 10(1), pages 1-45, March.
    6. Tilak Abeysinghe & Ananda Jayawickrama, 2013. "A segmented trend model to assess fiscal sustainability: The US experience 1929–2009," Empirical Economics, Springer, vol. 44(3), pages 1129-1141, June.
    7. Roberto Ricciuti, 2003. "Assessing Ricardian Equivalence," Journal of Economic Surveys, Wiley Blackwell, vol. 17(1), pages 55-78, February.
    8. Akram, Vaseem & Rath, Badri Narayan, 2020. "What do we know about fiscal sustainability across Indian states?," Economic Modelling, Elsevier, vol. 87(C), pages 307-321.
    9. Francisco de Castro & José M. González-Páramo & Pablo Hernández de Cos, 2001. "Evaluating the dynamics of fiscal policy in Spain: patterns of interdependence and consistency of public expenditure and revenues," Working Papers 0103, Banco de España.
    10. Ananda Jayawickrama & Tilak Abeysinghe, 2006. "Sustainability of Fiscal Deficits : The US Experience 1929-2004," Governance Working Papers 21924, East Asian Bureau of Economic Research.
    11. Kheifets, Igor L. & Phillips, Peter C.B., 2023. "Fully modified least squares cointegrating parameter estimation in multicointegrated systems," Journal of Econometrics, Elsevier, vol. 232(2), pages 300-319.
    12. Juan Carlos Cuestas & Luis A. Gil-Alana & Laura Sauci, 2020. "Public finances in the EU-27: Are they sustainable?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 47(1), pages 181-204, February.
    13. Bajo-Rubio, Oscar & Díaz-Roldán, Carmen & Esteve, Vicente, 2014. "Deficit sustainability, and monetary versus fiscal dominance: The case of Spain, 1850–2000," Journal of Policy Modeling, Elsevier, vol. 36(5), pages 924-937.
    14. António Afonso & José Alves & Oļegs Matvejevs & Oļegs Tkačevs, 2023. "Fiscal Sustainability and the Role of Inflation," CESifo Working Paper Series 10843, CESifo.
    15. Gabriella Deborah Legrenzi & Costas Milas, 2010. "Spend-and-Tax Adjustments and the Sustainability of the Government's Intertemporal Budget Constraint," CESifo Working Paper Series 2926, CESifo.
    16. Philip Arestis & Andrea Cipollini & Bassam Fattouh, 2004. "Threshold Effects in the U.S. Budget Deficit," Economic Inquiry, Western Economic Association International, vol. 42(2), pages 214-222, April.
    17. John T. Cuddington, 1997. "Analysing the Sustainability of Fiscal Deficits in Developing Countries," International Finance 9706001, University Library of Munich, Germany.
    18. Shruti SHASTRI & A.K. GIRI & Geetilaxmi MOHAPATRA, 2017. "An empirical assessment of fiscal sustainability for selected South Asian economies," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(1(610), S), pages 163-178, Spring.
    19. Neto, David, 2020. "Tracking fiscal discipline. Looking for a PIIGS on the wing," International Economics, Elsevier, vol. 163(C), pages 147-154.
    20. Pierre-Yves Hénin, 1997. "Soutenabilité des déficits et ajustements budgétaires," Revue Économique, Programme National Persée, vol. 48(3), pages 371-395.

    More about this item

    Keywords

    Indian state; government budgetary deficit; public debt; long run fiscal policy;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • 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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:awe:wpaper:329. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/iegggin.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.