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Structural Breaks and Unit Roots: A Further Test of the Sustainability of the Indian Fiscal Deficit


  • Raghbendra Jha


  • Anurag Sharma


If public expenditure and public revenue are I(0) public debt is sustainable but if these are I(1) and not cointegrated or have a cointegrating vector di erent from [1, -1] the public debt is said to be unsustainable. Extant work indicates that India’s public debt is unsustainable. We re-investigate this issue by allowing for endogenous structural breaks for two data sets - the British period 1871-1921 and the post independence period 1950-1997. Revenue and expenditure series (nominal as well as real) are trend stationary with structural breaks, at least for the post independence period. Thus Indian public debt is not unsustainable.

Suggested Citation

  • Raghbendra Jha & Anurag Sharma, 2001. "Structural Breaks and Unit Roots: A Further Test of the Sustainability of the Indian Fiscal Deficit," ASARC Working Papers 2001-08, The Australian National University, Australia South Asia Research Centre.
  • Handle: RePEc:pas:asarcc:2001-08

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    References listed on IDEAS

    1. 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.
    2. Hamilton, James D & Flavin, Marjorie A, 1986. "On the Limitations of Government Borrowing: A Framework for EmpiricalTesting," American Economic Review, American Economic Association, vol. 76(4), pages 808-819, September.
    3. Uctum, Merih & Wickens, Michael, 2000. " Debt and Deficit Ceilings, and Sustainability of Fiscal Policies: An Intertemporal Analysis," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 62(2), pages 197-222, May.
    4. Hall, Alastair R, 1994. "Testing for a Unit Root in Time Series with Pretest Data-Based Model Selection," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(4), pages 461-470, October.
    5. Robin L. Lumsdaine & David H. Papell, 1997. "Multiple Trend Breaks And The Unit-Root Hypothesis," The Review of Economics and Statistics, MIT Press, vol. 79(2), pages 212-218, May.
    6. Perron, Pierre, 1989. "The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Econometrica, Econometric Society, vol. 57(6), pages 1361-1401, November.
    7. Banerjee, Anindya & Lumsdaine, Robin L & Stock, James H, 1992. "Recursive and Sequential Tests of the Unit-Root and Trend-Break Hypotheses: Theory and International Evidence," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(3), pages 271-287, July.
    8. Athanasios Papadopoulos & Moïse Sidiropoulos, 1999. "The sustainability of fiscal policies in the European Union," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 5(3), pages 289-307, August.
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    Cited by:

    1. Kannan, R & Singh, Bhupal, 2007. "Debt-deficit dynamics in India and macroeconomic effects: A structural approach," MPRA Paper 16480, University Library of Munich, Germany, revised 2007.
    2. Hakhu, Antra Bhatt, 2015. "Productive Public Expenditure and Debt Dynamics: An Error Correction Representation using Indian Data," Working Papers 15/149, National Institute of Public Finance and Policy.
    3. Bhatt, Antra, 2010. "Revisiting Indicators of Public Debt Sustainability: Capital Expenditure, Growth and Public Debt in India," MPRA Paper 27422, University Library of Munich, Germany.
    4. Goyal, Rajan & Khundrakpam, J. K. & Ray, Partha, 2004. "Is India's public finance unsustainable? Or, are the claims exaggerated?," Journal of Policy Modeling, Elsevier, vol. 26(3), pages 401-420, April.
    5. Ananda Jayawickrama & Tilak Abeysinghe, 2006. "Sustainability Of Fiscal Deficits: The U.S. Experience 1929-2004," SCAPE Policy Research Working Paper Series 05xx, National University of Singapore, Department of Economics, SCAPE.
    6. Alboghdady, Mohamed Altabei & Alashry, Mohamed Khairy, 2010. "The demand for meat in Egypt: An almost ideal estimation," Journal of Cooperatives, NCERA-210, vol. 4(1), March.

    More about this item


    Structural Break; Unit Root; Public Finance; Revenue; Expenditure;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General


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