An Examination of the Sustainability of Indian Fiscal Policy.

India has a long history of running fiscal deficits. This paper asks whether the magnitude of these deficits has involved a violation of India's intertemporal budget constraint. Times series evidence on Central government tax revenues and expenditures are examined for cointegration using procedures that are robust in the presence of structural change. We find no evidence of cointegration, a result that implies a violation of intertemporal solvency and that current fiscal policies are unlikely to be sustainable in the long-run.