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Debt, Deficits and Inflation: An Application to the Public Finances of India

  • Willem H. Buiter
  • Urjit R. Patel

The paper studies the solvency of the Indian public sector and the eventual monetization and inflation implied by stabilization of the debt-GNP ratio without any changes in the primary deficit. The nonstationarity of the discounted public debt suggests that indefinite continuation of the pattern of behavior reflected in the historical discounted debt process is inconsistent with the maintenance of solvency. This message is reinforced by the recent behavior of the debt-GNP ratio and the ratio of primary surplus plus seigniorage to GNP. Our estimates of the base money demand function suggest that even maximal use of seigniorage will not be sufficient to restore solvency.

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File URL: http://www.nber.org/papers/w3287.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3287.

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Date of creation: Mar 1990
Date of revision:
Publication status: published as Journal of Public Economics, Vol. 47, pp. 171-205, (1992).
Handle: RePEc:nbr:nberwo:3287
Note: ITI ME IFM
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