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Fiscal Sustainability of States in India:Evidence of Fiscal Fatigue

Author

Listed:
  • Basanta K Pradhan
  • Anjali Prashad

    (Institute of Economic Growth, Delhi)

Abstract

Asufficiency condition for fiscal sustainability is often suggested to augment primary balance to meet the challenge of increasing debt stock. But such an adjustment may not always result in areduction of debt stock if fiscal consolidation exhibits “fiscal fatigue†, a situation in which primary balance turns irresponsive or negatively reacts to the debt stock. This paper attempts to investigate whether primary balance adjustment to changing debt levels by the Indian States display such a characteristic. The study of debt-deficit data of 10 major States of India for a period from 1990-91 to 2014-1 5gives empirical evidence of fiscal fatigue in the primary balance adjustment to debt stabilization.

Suggested Citation

  • Basanta K Pradhan & Anjali Prashad, 2018. "Fiscal Sustainability of States in India:Evidence of Fiscal Fatigue," IEG Working Papers 378, Institute of Economic Growth.
    • Handle: RePEc:awe:wpaper:378
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    More about this item

    Keywords

    Fiscal Responsibility and Budget Management Act; fiscal fatigue; debt stock; income growth; fiscal priority spending.;
    All these keywords.

    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management
    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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