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<p>Despite the growing concerns regarding fiscal sustainability in India, the literature has largely overlooked the asymmetric relationships between fiscal variables and the specific dynamics of revenue and expenditure adjustments in response to economic shocks. This study aims to fill this critical gap, emphasising the importance of understanding these dynamics, by employing Fourier-based econometric techniques to examine the sustainability of fiscal imbalance and public debt in India, using annual data from 1980 to 2021. This approach is particularly relevant for emerging markets like India, where economic cycles can be volatile and policy responses need to be adaptive. Our findings reveal that for every unit increase in expenditure, revenue rises by only 0.708 units in the long period and 0.431 units in the short period, indicating weak fiscal sustainability and the inability to satisfy intertemporal budget constraints. Furthermore, the Hatemi-J asymmetric causality test demonstrates that expenditure significantly drives revenue, with causal effects arising from both positive and negative expenditure shocks, thereby supporting the Spend-and-Tax hypothesis. This reactive revenue generation indicates ineffective fiscal management, posing risks to long-term sustainability. By highlighting the importance of asymmetry in fiscal responses through Fourier methodologies, this study contributes valuable insights to the discourse on India’s fiscal sustainability. Policymakers in India should prioritise debt management and fiscal discipline, ensuring that spending aligns with revenue generation to maintain long-term fiscal stability.</p>

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Assessing the sustainability of fiscal imbalance and public debt in India: evidence from novel asymmetric and fourier approaches

  • 期刊论文

  • 发表日期：

    2025年12月18日

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  • Masroor Ahmad,
  • Arif Mohd Khah

摘要

Despite the growing concerns regarding fiscal sustainability in India, the literature has largely overlooked the asymmetric relationships between fiscal variables and the specific dynamics of revenue and expenditure adjustments in response to economic shocks. This study aims to fill this critical gap, emphasising the importance of understanding these dynamics, by employing Fourier-based econometric techniques to examine the sustainability of fiscal imbalance and public debt in India, using annual data from 1980 to 2021. This approach is particularly relevant for emerging markets like India, where economic cycles can be volatile and policy responses need to be adaptive. Our findings reveal that for every unit increase in expenditure, revenue rises by only 0.708 units in the long period and 0.431 units in the short period, indicating weak fiscal sustainability and the inability to satisfy intertemporal budget constraints. Furthermore, the Hatemi-J asymmetric causality test demonstrates that expenditure significantly drives revenue, with causal effects arising from both positive and negative expenditure shocks, thereby supporting the Spend-and-Tax hypothesis. This reactive revenue generation indicates ineffective fiscal management, posing risks to long-term sustainability. By highlighting the importance of asymmetry in fiscal responses through Fourier methodologies, this study contributes valuable insights to the discourse on India’s fiscal sustainability. Policymakers in India should prioritise debt management and fiscal discipline, ensuring that spending aligns with revenue generation to maintain long-term fiscal stability.