london-journal-of-humanities-and-social-science London Journal of Humanities and Social Science 2515-5784 2515-5792 JournalsPress 63587 Empirical Analysis on Sustainability of Public Debt in Indian States 21 4 31 46

This article utilizes the Bohn framework for panel data and penalized spline technique for testing public debt sustainability in 20 major Indian states during 2007-08 to 2018-19. The study shows that the primary surplus reacts positively to public debt only in 4states, indicating debt sustainability in these states. Interestingly, the reaction coefficients are time-varying in 10 states, of which three are sustainable. Further, we descriptively verified whether the sustainable debt is welfare-enhancing as well during the study period. We found that debt is neither sustainable no welfare-enhancing in the case of 12 states, so they need to take corrective actions.

 Full Text

This article utilizes the Bohn framework for panel data and penalized spline technique for testing public debt sustainability in 20 major Indian states during 2007-08 to 2018-19. The study shows that the primary surplus reacts positively to public debt only in 4states, indicating debt sustainability in these states. Interestingly, the reaction coefficients are time-varying in 10 states, of which three are sustainable. Further, we descriptively verified whether the sustainable debt is welfare-enhancing as well during the study period. We found that debt is neither sustainable no welfare-enhancing in the case of 12 states, so they need to take corrective actions.