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Sustainability and Threshold Value of Public Debt in Karnataka

Author

Listed:
  • K. R. Shanmugam

    (Director and Professor (Corresponding Author), Madras School of Economics, Gandhi Mandapam Road, Chennai)

  • P.S. Renjith

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

Abstract

This study analyzes the sustainability and the threshold level of public debt in Karnataka using the modern time series methods and threshold regression method. The results of the study indicate that Karnataka’s public debt level is unsustainable, and its debt sustainability threshold is about 20 percent. Since Karnataka’s debt is negatively related to growth, the state should control its debt to a sustainable level. The simulation exercise based on the debt dynamics of the state suggests that the state GSDP (nominal) should grow at 14 percent and the fiscal deficit target should be 2 percent from 2024-25 onwards to attain the debt sustainability target in 2028-29 and with 13 percent growth the state could reach the target in 2030-31. The relevant policy strategy for the state is to increase its revenue-GSDP ratio by 1 percent.

Suggested Citation

  • K. R. Shanmugam & P.S. Renjith, 2024. "Sustainability and Threshold Value of Public Debt in Karnataka," Working Papers 2024-256, Madras School of Economics,Chennai,India.
    • Handle: RePEc:mad:wpaper:2024-256
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    More about this item

    Keywords

    sustainability; threshold value; public debt; FRBM; debt solvency; Karnataka;
    All these keywords.

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior

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