Revisiting Indicators of Public Debt Sustainability: Capital Expenditure, Growth and Public Debt in India

Antra Bhatt

MPRA Paper from University Library of Munich, Germany

Abstract: The paper tests whether productive expenditures share a long run re- lationship with debt to GDP ratio by using a multivariate time series framework. The theoretical model is based on dynamic optimization of utility and productive expenditure with respect to capital and debt. Literature on growth theory has suggested that all less productive expenditures can have a negative effect on the growth rate of real GDP per capita until the optimal level of productive expenditure is reached. This would indeed lead to higher level of debt as growth rate will be reduced. Aggregate yearly data for India covering the period 1980-2009 have been used. The CAPRATIO and Debt to GDP ratio are cointegrated. VAR modeling with error correction reveals that the model can be used for forecasts. The regression coecient between the two variables is negative, signifying the inverse relationship. Having proved the hypothesis of an inverse long run relationship between the two variables, a new indicator based on the Government Inter-temporal budget constraint is suggested, revolving around capital expenditure.

Keywords: Public Debt sustainability indicators; Capital Expenditure; Growth. (search for similar items in EconPapers)
JEL-codes: C22 E62 (search for similar items in EconPapers)
Date: 2010-12-09
New Economics Papers: this item is included in nep-fdg, nep-mac and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/27422/1/MPRA_paper_27422.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/28289/1/MPRA_paper_28289.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/58783/1/MPRA_paper_58783.pdf revised version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:27422

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().