Structural Breaks and Unit Roots: A Further Test of the Sustainability of the Indian Fiscal Deficit Jha, Raghbendra; Sharma, Anurag

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Jha, Raghbendra ; Sharma, Anurag
expenditure; public finance; unit root
If public expenditure and public revenue are I(0) public debt is sustainable but if these are I(1) and not cointegrated or have a cointegrating vector different from [1, -1] the public debt is said to be unsustainable. Extant work indicates that India’s public debt is unsustainable. We re-investigate this issue by allowing for endogenous structural breaks for two data sets - the British period 1871-1921 and the post independence period 1950-1997. Revenue and expenditure series (nominal as well as real) are trend stationary with structural breaks, at least for the post independence period. Thus Indian public debt is not unsustainable.
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