Sustainability of public debt in Sri Lanka under symmetric and asymmetric cointegration among fiscal variables
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PhD Seminar (Econ)
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The sustainability of public debt in Sri Lanka has become an intensely debated concern. This paper uses data for 1961–2017 to study this issue. The method estimates fiscal reaction functions, using symmetric and asymmetric cointegration techniques. The results highlight non-linearities among the effects of fiscal variables. There are significant differences in the short- and long-run responses of Sri Lanka’s primary balance to positive or negative changes in the regressors. Evidence emerges of fiscal authorities’ attempts to stabilise the debt-to-GDP ratio. The study concludes that coordination between the tax authorities, the monetary authority, and other fiscal authorities is required to preserve the sustainability of Sri Lanka’s public debt.
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