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Revisiting Indicators of Public Debt Sustainability: Capital Expenditure, Growth and Public Debt in India

Bhatt, Antra (2010): Revisiting Indicators of Public Debt Sustainability: Capital Expenditure, Growth and Public Debt in India.

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Abstract

The paper tests whether there exists an inverse long-term relationship between productive government spending and public debt in developing countries by using a multivariate time series framework. The theoretical model is based on dynamic optimization of utility and productive expenditure with respect to government capital, private capital and debt. An inverse long-term relationship between capital expenditure ratio and public debt in India is found using the cointegration and error correction analysis. Further, a new indicator based on capital expenditure derived from the Government Inter-temporal budget constraint is suggested.

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