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Empirical Analysis on Sustainability of Public Debt in Indian States

Author

Listed:
  • K. R. Shanmugam

    ((Corresponding Author)Director and Professor, Madras School of Economics)

  • P.S. Renjith

    (Assistant Professor, Gulati Institute of Finance and Taxation, India)

Abstract

This article utilizes the Bohn framework for panel data and penalized spline technique for testing public debt sustainability in 20 major Indian states during 2007-08 to 2018-19. The study shows that the primary surplus reacts positively to public debt only in 4 states, indicating debt sustainability in these states. Interestingly, the reaction coefficients are time-varying in 10 states, of which three are sustainable. Further, we descriptively verified whether the sustainable debt is welfare-enhancing as well during the study period. We found that debt is neither sustainable nor welfare-enhancing in the case of 12 states, so they need to take corrective actions.

Suggested Citation

  • K. R. Shanmugam & P.S. Renjith, 2022. "Empirical Analysis on Sustainability of Public Debt in Indian States," Working Papers 2022-235, Madras School of Economics,Chennai,India.
    • Handle: RePEc:mad:wpaper:2022-235
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    References listed on IDEAS

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    More about this item

    Keywords

    Sustainable Debt; Indian States; Bohn Model; Penalized Spline;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • 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

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