Debt, Deficits and Inflation: An Application to the Public Finance of India

Willem Buiter and U Patel

No 408, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The paper studies the solvency of the Indian public sector and the eventual monetization and inflation implied by stabilization of the debt/GNP ratio without any changes in the primary deficit. The non-stationarity of the discounted public debt suggests that solvency cannot be maintained with an indefinite continuation of the pattern of behaviour reflected in the historical discounted debt process. This message is reinforced by the recent behaviour of the debt/GNP ratio and the ratio of primary surplus plus seigniorage to GNP. Our estimates of the base money demand function suggest that even maximal use of seigniorage will not be sufficient to restore solvency.

Keywords: Public Debt; Seigniorage; Solvency (search for similar items in EconPapers)
Date: 1990-04
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Related works:
Journal Article: Debt, deficits, and inflation: An application to the public finances of India (1992)
Working Paper: Debt, Deficits and Inflation: An Application to the Public Finances of India (1990)
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