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An Examination of the Sustainability of Indian Fiscal Policy

  • Cashin, P.
  • Olekalns, N.

India has a long history of running fiscal deficits. This paper asks whether the magnitude of these deficits has involved a violation of India's intertemporal budget constraint. Times series evidence on Central government tax revenues and expenditures are examined for cointegration using procedures that are robust in the presence of structural change. We find no evidence of cointegration, a result that implies a violation of intertemporal solvency and that current fiscal policies are unlikely to be sustainable in the long-run.

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Paper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 748.

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Length: 17 pages
Date of creation: 2000
Date of revision:
Handle: RePEc:mlb:wpaper:748
Contact details of provider: Postal: Department of Economics, The University of Melbourne, 4th Floor, FBE Building, Level 4, 111 Barry Street. Victoria, 3010, Australia
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  1. Gregory, Allan W. & Hansen, Bruce E., 1996. "Residual-based tests for cointegration in models with regime shifts," Journal of Econometrics, Elsevier, vol. 70(1), pages 99-126, January.
  2. repec:ltr:wpaper:1993.08 is not listed on IDEAS
  3. Hakkio, Craig S & Rush, Mark, 1991. "Is the Budget Deficit "Too Large?"," Economic Inquiry, Western Economic Association International, vol. 29(3), pages 429-45, July.
  4. Tanner, Evan & Liu, Peter, 1994. "Is the Budget Deficit "Too Large"?: Some Further Evidence," Economic Inquiry, Western Economic Association International, vol. 32(3), pages 511-18, July.
  5. Olivier J. Blanchard & Philippe Weil, 2001. "Dynamic Efficiency, the Riskless Rate, and Debt Ponzi Games under Uncertainty," Sciences Po publications info:hdl:2441/8607, Sciences Po.
  6. Wilcox, David W, 1989. "The Sustainability of Government Deficits: Implications of the Present-Value Borrowing Constraint," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 21(3), pages 291-306, August.
  7. Kwiatkowski, D. & Phillips, P.C.B. & Schmidt, P., 1990. "Testing the Null Hypothesis of Stationarity Against the Alternative of Unit Root : How Sure are we that Economic Time Series have a Unit Root?," Papers 8905, Michigan State - Econometrics and Economic Theory.
  8. Perron, P., 1994. "Further Evidence on Breaking Trend Functions in Macroeconomic Variables," Cahiers de recherche 9421, Centre interuniversitaire de recherche en ├ęconomie quantitative, CIREQ.
  9. James D. Hamilton & Marjorie A. Flavin, 1985. "On the Limitations of Government Borrowing: A Framework for Empirical Testing," NBER Working Papers 1632, National Bureau of Economic Research, Inc.
  10. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
  11. Richard Hemming & Woosik Chu & Charles Collyns & Karen Elizabeth Parker & Ajai Chopra & Oliver Fratzscher, 1995. "India: Economic Reform and Growth," IMF Occasional Papers 134, International Monetary Fund.
  12. Eric Zivot & Donald W.K. Andrews, 1990. "Further Evidence on the Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Cowles Foundation Discussion Papers 944, Cowles Foundation for Research in Economics, Yale University.
  13. Haug, A.A., 1993. "Has Federal Budget Deficit Policy Changed in Recent Years?," Papers 93-8, York (Canada) - Department of Economics.
  14. Quintos, Carmela E, 1995. "Sustainability of the Deficit Process with Structural Shifts," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(4), pages 409-17, October.
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