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Debt, Deficits and Inflation: An Application to the Public Finance of India

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Author Info
Buiter, Willem H
Patel, U

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Abstract

The paper studies the solvency of the Indian public sector and the eventual monetization and inflation implied by stabilization of the debt/GNP ratio without any changes in the primary deficit. The non-stationarity of the discounted public debt suggests that solvency cannot be maintained with an indefinite continuation of the pattern of behaviour reflected in the historical discounted debt process. This message is reinforced by the recent behaviour of the debt/GNP ratio and the ratio of primary surplus plus seigniorage to GNP. Our estimates of the base money demand function suggest that even maximal use of seigniorage will not be sufficient to restore solvency.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 408.

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Date of creation: Apr 1990
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Handle: RePEc:cpr:ceprdp:408

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Related research
Keywords: Public Debt; Seigniorage; Solvency;

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  1. Nirvikar Singh & T. Srinivasan, 2004. "Fiscal Policy in India: Lessons and Priorities," Santa Cruz Department of Economics, Working Paper Series 1022, Department of Economics, UC Santa Cruz. [Downloadable!]
    Other versions:
  2. Pinto, Brian & Zahir, Farah, 2004. "India : why fiscal adjustment now," Policy Research Working Paper Series 3230, The World Bank. [Downloadable!]
  3. Thomas Krichel & Paul Levine & Joseph Pearlman, 1994. "Fiscal and Monetary Policy in a Monetary Union: Credible Inflation Targets or Monetised Debt?," Department of Economics Discussion Papers 9403, Department of Economics, University of Surrey. [Downloadable!]
    Other versions:
  4. Alain Paquet, 1998. "Prudence fiscale, indicateurs d'endettement et évolution de l'état des finances des administrations publiques au Canada," Cahiers de recherche CREFE / CREFE Working Papers 59, CREFE, Université du Québec à Montréal. [Downloadable!]
  5. Fève, Patrick & Hénin, Pierre-Yves, 1998. "Assessing effective sustainability of fiscal policy within the G-7," CEPREMAP Working Papers (Couverture Orange) 9815, CEPREMAP. [Downloadable!]
    Other versions:
  6. Agarwal, Manoj Kumar, 2005. "Budgetary constraints and growth scenario in Uttar Pradesh," Working Papers 05/30, National Institute of Public Finance and Policy. [Downloadable!]
  7. Willem H. Buiter & K.M. Kletzer, 1994. "Ponzi Finance, Government Solvency and the Redundancy or Usefulness of Public Debt," Cowles Foundation Discussion Papers 1070, Cowles Foundation, Yale University. [Downloadable!]
  8. Rath, S.S., 2005. "Fiscal development in Orissa: Problems and prospects," Working Papers 05/32, National Institute of Public Finance and Policy. [Downloadable!]
  9. Uhlig, H., 1997. "Capital income taxation and the sustainability of permanent primary deficits," Discussion Paper 11, Tilburg University, Center for Economic Research. [Downloadable!]
  10. Ananda Jayawickrama & Tilak Abeysinghe, 2006. "Sustainability Of Fiscal Deficits: The U.S. Experience 1929-2004," SCAPE Policy Research Working Paper Series 05xx, National University of Singapore, Department of Economics, SCAPE. [Downloadable!]
  11. Rangarajan, C. & Srivastava, D.K., 2005. "Fiscal deficits and government debt in India: Implications for growth and stabilisation," Working Papers 05/35, National Institute of Public Finance and Policy. [Downloadable!]
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