Structural Breaks, Unit Roots, and Cointegration: A Further Test of the Sustainability of the Indian Fiscal Deficit
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 Indiaâ€™s public debt is unsustainable. The authors reinvestigate this issue by allowing for endogenous structural breaks for two data setsâ€”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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