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PUBLIC DEBT SUSTAINABILITY IN INDIA: A CO-INTEGRATION APPROACH BASED ON STRUCTURAL BREAKS WITH REGIME SHIFT

Abstract

In this paper we examine the sustainability of public debt in case of India. We have used combined government data (Centre’s and State’s government) for a period from 1990 to 2016). For testing the sustainability of debt, we have taken government revenues and expenditure. First we have investigated co-integration between government spending and revenues using ARDL bound testing model. The bound test reveals that there exists no long-run relationship between the variables. Gregory-Hansen and Hatemi-j threshold co-integration test are applied to test the sustainability hypothesis in the presence of regime shift. the result shows that no co-integration relationship between the variables in case of single structural break, but for two structural break our study confirm existence of co-integration relationship for the given variables. We do not find the long-run coefficients statistically significant for sustainability of public debt.

MOHAMMAD ASIF and SHAH HUSAIN

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