Assessing the Long-Run Sustainability of Public Debt and Fiscal Deficit in India

Abdhut Deheri and Ajit Nag

Global Journal of Emerging Market Economies, 2023, vol. 15, issue 3, 313-329

Abstract: This article assesses the long-run sustainability of public debt and fiscal deficit in India for the period 1980–1981 to 2019–2020. The study estimated a model-based fiscal reaction function (FRF) using the Autoregressive Distributed Lag (ARDL) model to assess debt sustainability. The results revealed that the primary surplus responds positively and significantly to the previous period debt in both the short- and long-run. This implies that the fiscal policy satisfies the intertemporal budget constraint (IBC) and follows the debt-stabilizing rule. Next, to assess the sustainability of the fiscal deficit, we examined the long-run association between total revenues and total expenditures using a structural break cointegration test. The results revealed that they are cointegrated, implying that IBC is met and the fiscal deficit is sustainable. The results of long-run estimation provide evidence in support of strong budgetary sustainability. Overall, the results indicate that the public debt and the fiscal deficit are sustainable in India. From a policy standpoint, our research suggests that the government should take the necessary measures to reduce the growing public debt to ensure its long-run sustainability.

Keywords: Fiscal sustainability; fiscal reaction function; co-integration; structural break; ARDL bounds test (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://journals.sagepub.com/doi/10.1177/09749101221113881 (text/html)

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:sae:emeeco:v:15:y:2023:i:3:p:313-329

DOI: 10.1177/09749101221113881

Access Statistics for this article

More articles in Global Journal of Emerging Market Economies from Emerging Markets Forum
Bibliographic data for series maintained by SAGE Publications ().