Structural breaks and unit roots: a further test of the sustainability of the Indian fiscal deficit

Abstract

If public expenditure and public revenue are (0) public debt is sustainable butif these are (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'spublic debt is unsustainable. We re-investigate this issue by allowing for endogenousstructural breaks for two data sets - the British period 1871-1921 and the post in-dependence period 1950-1997. Revenue and expenditure series (nominal as well asreal) are trend stationary with structural breaks, at least for the post independenceperiod. Thus Indian public debt is not unsustainable. Show more