Structural breaks and unit roots: a further test of the sustainability of the Indian fiscal deficit

Author name: 
Raghbendra Jha
Anurag Sharma

If public expenditure and public revenue areI(0) public debt is sustainable butif these areI(1) and not cointegrated or have a cointegrating vector different from[1, -1] the public debt is said to be unsustainable. Extant work indicates that India’spublic debt is unsustainable. We re-investigate this issue by allowing for endogenousstructural breaks for two data sets - the British period 1871-1921 and the post in-dependence period 1950-1997. Revenue and expenditure series (nominal as well asreal) are trend stationary with structural breaks, at least for the post independenceperiod. Thus Indian public debt is not unsustainable.

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