Sustainability of the fiscal imbalance and public debt under fiscal policy asymmetries in Sri Lanka
Anuruddhi Shanika K Rathnayake
Journal of Asian Economics, 2020, vol. 66, issue C
This paper investigates the sustainability of Sri Lanka’s fiscal imbalance and public debt. To test for sustainability of the fiscal imbalance, the study applies a symmetric ARDL (autoregressive distributive lag) technique to estimate a government intertemporal budget constraint. And to test for sustainability of public debt, it applies an asymmetric ARDL technique to estimate a fiscal reaction function, which allows for differential responses in the primary budget balance depending on whether shocks to regressors are positive or negative. Annual data for the period 1961–2018 are used in the estimations. The results indicate that Sri Lanka’s fiscal management is inconsistent with strong form sustainability, which requires that expenditures not grow faster than revenues. However, estimation of the fiscal reaction function finds robust evidence for fiscal policy asymmetries. Evidence emerges that Sri Lanka’s fiscal policy stance is procyclical with strong stabilization tendencies in economic expansions that are not sustained in contractions. Against upsurges in the debt-to-GDP ratio, authorities are found to pursue fiscal consolidation, thus suggesting weak form sustainability.
Keywords: Sustainability of public debt; Fiscal reaction function; Policy asymmetries; Sri Lanka (search for similar items in EconPapers)
JEL-codes: E62 F34 H50 H60 H62 H63 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:asieco:v:66:y:2020:i:c:s1049007819301319
Access Statistics for this article
Journal of Asian Economics is currently edited by C. Wiemer
More articles in Journal of Asian Economics from Elsevier
Bibliographic data for series maintained by Nithya Sathishkumar ().