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Structural Breaks and Unit Roots: 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 di erent from [1, -1] the public debt is said to be unsustainable. Extant work indicates that India’s public debt is unsustainable. We re-investigate this issue by allowing for endogenous structural breaks for two data sets - the British period 1871-1921 and the post independence period 1950-1997. Revenue and expenditure series (nominal as well as real) are trend stationary with structural breaks, at least for the post independence period. Thus Indian public debt is not unsustainable.

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File URL: https://crawford.anu.edu.au/acde/asarc/pdf/papers/2001/WP2001_08.pdf
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Bibliographic Info

Paper provided by The Australian National University, Australia South Asia Research Centre in its series ASARC Working Papers with number 2001-08.

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Length: 26
Date of creation: Sep 2001
Date of revision:
Handle: RePEc:pas:asarcc:2001-08

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Keywords: Structural Break; Unit Root; Public Finance; Revenue; Expenditure;

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References

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  1. Wilcox, David W, 1989. "The Sustainability of Government Deficits: Implications of the Present-Value Borrowing Constraint," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 21(3), pages 291-306, August.
  2. Uctum, Merih & Wickens, Michael, 2000. " Debt and Deficit Ceilings, and Sustainability of Fiscal Policies: An Intertemporal Analysis," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 62(2), pages 197-222, May.
  3. Robin L. Lumsdaine & David H. Papell, 1997. "Multiple Trend Breaks And The Unit-Root Hypothesis," The Review of Economics and Statistics, MIT Press, vol. 79(2), pages 212-218, May.
  4. Banerjee, Anindya & Lumsdaine, Robin L & Stock, James H, 1992. "Recursive and Sequential Tests of the Unit-Root and Trend-Break Hypotheses: Theory and International Evidence," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(3), pages 271-87, July.
  5. James D. Hamilton & Marjorie A. Flavin, 1985. "On the Limitations of Government Borrowing: A Framework for Empirical Testing," NBER Working Papers 1632, National Bureau of Economic Research, Inc.
  6. Perron, Pierre, 1989. "The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Econometrica, Econometric Society, vol. 57(6), pages 1361-1401, November.
  7. Hall, Alastair R, 1994. "Testing for a Unit Root in Time Series with Pretest Data-Based Model Selection," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(4), pages 461-70, October.
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Cited by:
  1. Goyal, Rajan & Khundrakpam, J. K. & Ray, Partha, 2004. "Is India's public finance unsustainable? Or, are the claims exaggerated?," Journal of Policy Modeling, Elsevier, vol. 26(3), pages 401-420, April.
  2. Kannan, R & Singh, Bhupal, 2007. "Debt-deficit dynamics in India and macroeconomic effects: A structural approach," MPRA Paper 16480, University Library of Munich, Germany, revised 2007.
  3. Ananda Jayawickrama & Tilak Abeysinghe, 2006. "Sustainability of Fiscal Deficits : The US Experience 1929-2004," Governance Working Papers 21924, East Asian Bureau of Economic Research.
  4. Alboghdady, Mohamed Altabei & Alashry, Mohamed Khairy, 2010. "The demand for meat in Egypt: An almost ideal estimation," African Journal of Agricultural and Resource Economics, African Association of Agricultural Economists, vol. 4(1), March.
  5. Bhatt, Antra, 2010. "Revisiting Indicators of Public Debt Sustainability: Capital Expenditure, Growth and Public Debt in India," MPRA Paper 27422, University Library of Munich, Germany.

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