Sustainability and Threshold Value of Public Debt in Karnataka

K.R. Shanmugam and P.S. Renjith ()
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P.S. Renjith: Assistant Professor, Gulati Institute of Finance and Taxation, India

Working Papers from Madras School of Economics,Chennai,India

Abstract: This study analyzes the sustainability and the threshold level of public debt in Karnataka using the modern time series methods and threshold regression method. The results of the study indicate that Karnataka’s public debt level is unsustainable, and its debt sustainability threshold is about 20 percent. Since Karnataka’s debt is negatively related to growth, the state should control its debt to a sustainable level. The simulation exercise based on the debt dynamics of the state suggests that the state GSDP (nominal) should grow at 14 percent and the fiscal deficit target should be 2 percent from 2024-25 onwards to attain the debt sustainability target in 2028-29 and with 13 percent growth the state could reach the target in 2030-31. The relevant policy strategy for the state is to increase its revenue-GSDP ratio by 1 percent.

Keywords: sustainability; threshold value; public debt; FRBM; debt solvency; Karnataka (search for similar items in EconPapers)
JEL-codes: C23 D72 H63 Q54 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2024-04
New Economics Papers: this item is included in nep-fdg
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