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A Framework for Assessing Fiscal Sustainability and External Viability, with An Application to India

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  • Ms. Karen Elizabeth Parker
  • Steffen Kastner

Abstract

This paper presents a simple macroeconomic simulation model which can be used to evaluate alternative fiscal strategies and their implications for external viability. It attempts to bridge the gap between the literature on fiscal sustainability and the demands of operational work. The framework, developed in a spreadsheet format, generates estimates of public spending compatible with identified targets for growth, inflation and domestic and foreign borrowing. The difference between the spending path consistent with these targets and that based on current policies is the fiscal adjustment required to meet the authorities’ macroeconomic objectives. Alternatively, the framework can be used to assess the implications for inflation, interest rates and public indebtendess of a given spending path. Finally, one can analyze the impact of financial reform on fiscal and external performance. The model is applied to India to illustrate the types of simulations that may be conducted.

Suggested Citation

  • Ms. Karen Elizabeth Parker & Steffen Kastner, 1993. "A Framework for Assessing Fiscal Sustainability and External Viability, with An Application to India," IMF Working Papers 1993/078, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1993/078
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    Citations

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    Cited by:

    1. Paunovic, Igor, 2005. "Public debt sustainability in the northern countries of Latin America," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), December.
    2. Kannan, R & Singh, Bhupal, 2007. "Debt-deficit dynamics in India and macroeconomic effects: A structural approach," MPRA Paper 16480, University Library of Munich, Germany, revised 2007.
    3. Gianluca Cafiso, 2013. "Public-Debt Financing in the case of External Debt," Working Papers 2013-37, CEPII research center.
    4. Michale Borchardt & Isabel Rial & Adolfo Sarmiento, 1998. "La sostenibilidad de la política fiscal en América Latina: Aplicación al caso uruguayo," Research Department Publications 3019, Inter-American Development Bank, Research Department.
    5. A. Bhatt Hakhu & C. Sardoni, 2021. "Public expenditure and growth: the Indian case," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 18(1), pages 77-101, April.
    6. Hakhu, Antra Bhatt, 2015. "Productive Public Expenditure and Debt Dynamics: An Error Correction Representation using Indian Data," Working Papers 15/149, National Institute of Public Finance and Policy.
    7. Gianluca Cafiso, 2014. "Debt Sustainability in the Case of External Debt. An Analysis Based on Italy's Treasury Auctions," CESifo Working Paper Series 5021, CESifo.
    8. Cassimon, Denis & Moreno-Dodson, Blanca & Wodon, Quentin, 2008. "Debt Sustainability for Low-Income Countries: A Review of Standard and Alternative Concepts," MPRA Paper 11077, University Library of Munich, Germany.

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