This paper assesses the sustainability of fiscal policy in India from 1950 to 2010 using multicointegration techniques. Starting from the seminal approach of Granger-Lee (1989), the analysis is extended through more powerful econometric methodologies, including several types of multicointegration models allowing for regime-shifts. Overall, the evidence rejects multicointegration between revenues and expenditures, thus pointing out that India’s fiscal policy is not sustainable in a stochastic environment. The main policy implication is that, in the context of the ongoing fiscal consolidation process, the Indian government should establish a more systematic connection between fiscal policy guidelines and the evolution of public debt.
"Multicointegration and Fiscal Sustainability in India: Evidence from Standard and Regime Shifts Models
TRONZANO, MARCO ROBERTO
2014-01-01
Abstract
This paper assesses the sustainability of fiscal policy in India from 1950 to 2010 using multicointegration techniques. Starting from the seminal approach of Granger-Lee (1989), the analysis is extended through more powerful econometric methodologies, including several types of multicointegration models allowing for regime-shifts. Overall, the evidence rejects multicointegration between revenues and expenditures, thus pointing out that India’s fiscal policy is not sustainable in a stochastic environment. The main policy implication is that, in the context of the ongoing fiscal consolidation process, the Indian government should establish a more systematic connection between fiscal policy guidelines and the evolution of public debt.
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