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Examining Sustainability of Federal Finances in India: An Application of Non-stationary Panel Methods

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  • Rath, Deba Prasad
  • Misra, Biswa Swarup

Abstract

This paper examines the fiscal sustainability of Indian States during the 1990s on the basis of their budgetary data. Sustainability has been discussed using the inter-temporal budget constraint framework and has been tested by applying the panel co-integration technique. The panel analysis reveals that revenue receipts and revenue expenditures are co-integrated across the States. Further, the insensitivity of the results to the choice of the period of analysis attests the robustness of the result that the State finances in India may not be unsustainable.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 21894.

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Date of creation: 2006
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Handle: RePEc:pra:mprapa:21894

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Keywords: State Finances; Panel Cointegration;

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  1. Peter Pedroni, 1999. "Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors," Department of Economics Working Papers, Department of Economics, Williams College 2000-02, Department of Economics, Williams College.
  2. Hakkio, Craig S & Rush, Mark, 1991. "Is the Budget Deficit "Too Large?"," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 29(3), pages 429-45, July.
  3. Peter Pedroni, 2001. "Purchasing Power Parity Tests In Cointegrated Panels," The Review of Economics and Statistics, MIT Press, vol. 83(4), pages 727-731, November.
  4. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, Elsevier, vol. 115(1), pages 53-74, July.
  5. Kaddour Hadri, 2000. "Testing for stationarity in heterogeneous panel data," Econometrics Journal, Royal Economic Society, Royal Economic Society, vol. 3(2), pages 148-161.
  6. Nyblom, Jukka & Harvey, Andrew, 2000. "Tests Of Common Stochastic Trends," Econometric Theory, Cambridge University Press, Cambridge University Press, vol. 16(02), pages 176-199, April.
  7. Cashin, P. & Olekalns, N., 2000. "An Examination of the Sustainability of Indian Fiscal Policy," Department of Economics - Working Papers Series, The University of Melbourne 748, The University of Melbourne.
  8. Banerjee, Anindya, 1999. " Panel Data Unit Roots and Cointegration: An Overview," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, Department of Economics, University of Oxford, vol. 61(0), pages 607-29, Special I.
  9. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, Elsevier, vol. 108(1), pages 1-24, May.
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