This study makes an attempt to unfurl why the off-budget exposure of the government, which poses sizeable fiscal risks as and when they materialize, is an off-shoot of the on-budget constraints that governments either inherit or get involved in. These not only include procedural or rule-driven inefficiencies but also combine asymmetrical nature of growth episodes at both the national and sub-national levels. As a result, much of the off-budget debt burden rises in both its implicit form through the rise in magnitude of the debt–deficit stock-flow reconciliation and explicit form in the form of guarantees extended to distressed public sector bodies. We employ the Nonlinear Autoregressive Distributed Lag Model to account for this relationship between the off-budget and on-budget indicators at both the national and sub-national levels. This carries significant policy implications for a federal nation like India where lack of uniformity in fiscal rules coupled with the responsibility of bailing out state governments lying with the national government entails a clear mandate for fiscal transparency at all level of the government.
ArapisT., & ReitanoV. (2018). Examining the evolution of cross-national fiscal transparency. The American Review of Public Administration, 48(6), 550–564.
2.
Blackburne IIIE. F., & FrankM. W. (2007). Estimation of nonstationary heterogeneous panels. The Stata Journal, 7(2), 197–208.
3.
BlagraveP., & GonguetF. (2020). Enhancing fiscal transparency and reporting in India (Working Paper No. 2020/250). International Monetary Fund.
4.
BlanchardO. (2019). Public debt and low interest rates. American Economic Review, 109(4), 1197–1229.
5.
BlumeL., & VoigtS. (2013). The economic effects of constitutional budget institutions. European Journal of Political Economy, 29, 236–251.
6.
BuiterW. H., & PatelU. R. (1992). Debt, deficits, and inflation: An application to the public finances of India. Journal of Public Economics, 47(2), 171–205.
7.
CamposC. F., JaimovichD., & PanizzaU. (2006). The unexplained part of public debt. Emerging Markets Review, 7(3), 228–243.
8.
CebotariA. (2008). Contingent liabilities: Issues and practice (Working Paper No. 08/245). International Monetary Fund.
9.
ChangE., & EsfahaniH. S. (2013). On the determinants of hidden public debt. University of Champagne-Urbana.
10.
ChatagnyF., & SoguelN. C. (2012). The effect of tax revenue budgeting errors on fiscal balance: Evidence from the Swiss cantons. International Tax and Public Finance, 19, 319–337.
11.
Comptroller and Auditor, General (CAG). (2017). Report of the Comptroller and Auditor General of India on compliance of the Fiscal Responsibility and Budget Management Act, 2003 for the Year 2016–17 (Report No. 20). Union Government (Civil), Department of Economic Affairs (Ministry of Finance). https://cag.gov.in/uploads/download_audit_report/2018/Report_No_20_of_2018_Compliance_of_the_Fiscal_Responsibility_and_Budget_Management_Act_2003_Department_of_Economic_Affairs_Minis.pdf
12.
DholakiaR. H. (2015). State finances in the context of the emerging fiscal federalism in India: Analysis of past experience in fiscal discipline and consolidation. Emerging Economy Studies, 1(2), 115–130.
13.
DholakiaR. H., KhundrakpamJ. K., & GajbhiyeD. (2009). An outline of post 2009 FRBM fiscal architecture of the union government in the medium term [Research report]. Reserve Bank of India.
14.
DickeyD. A., & FullerW. A. (1979). Distribution of the estimators for autoregressive time series with a unit root. Journal of the American Statistical Association, 74(366a), 427–431.
15.
KaurA., & ChakrabortyL. (2018). UDAY power debt in retrospect and prospects: Analyzing the efficiency parameters (Working Paper No. 18/244). National Institute of Public Finance and Policy.
16.
KydlandF. E., & PrescottE. C. (1977). Rules rather than discretion: The inconsistency of optimal plans. Journal of Political Economy, 85(3), 473–491.
17.
LindstedtC., & NaurinD. (2010). Transparency is not enough: Making transparency effective in reducing corruption. International Political Science Review, 31(3), 301–322.
18.
LusinyanL., CebotariA., VellosoR., DavisJ., MatiA., PetrieM., & MauroP. (2009). Fiscal risks: sources, disclosure, and management (pp. 1–61). International Monetary Fund.
19.
MeleckyM. (2021). Hidden debt, solutions to avert the next financial crisis in South Asia. World Bank Group
20.
MeloM. A., PereiraC., & SouzaS. (2014). Why do some governments resort to “creative accounting” but not others? Fiscal governance in the Brazilian federation. International Political Science Review, 35(5), 595–612.
21.
Milesi-FerrettiG. M. (2004). Good, bad or ugly? On the effects of fiscal rules with creative accounting. Journal of Public Economics, 88(1–2), 377–394.
22.
PeatM., SvecJ., & WangJ. (2015). The effects of fiscal opacity on sovereign credit spreads. Emerging Markets Review, 24, 34–45.
23.
PesaranM. H., ShinY., & SmithR. J. (1996). Testing for the existence of a long-run relationship (Working Paper No. 9622). Faculty of Economics, University of Cambridge.
24.
PesaranM. H., ShinY., & SmithR. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289–326.
25.
PhillipsP. C., & PerronP. (1988). Testing for a unit root in time series regression. Biometrika, 75(2), 335–346.
26.
RangarajanC., & SrivastavaD. K. (2003). Dynamics of debt accumulation in India: Impact of primary deficit, growth and interest rate. Economic & Political Weekly, 38(46), 4851–4858.
27.
ReinhartC. M., & RogoffK. S. (2009). This time is different: Eight centuries of financial folly. Princeton University Press.
28.
ReinhartC. M., & RogoffK. S. (2011). From financial crash to debt crisis. American Economic Review, 101(5), 1676–1706.
29.
ReinhartC. M., ReinhartV. R., & RogoffK. S. (2012). Public debt overhangs: Advanced economy episodes since 1800. Journal of Economic Perspectives, 26(3), 69–86.
30.
RomillyP., SongH., & LiuX. (2001). Car ownership and use in Britain: A comparison of the empirical results of alternative cointegration estimation methods and forecasts. Applied Economics, 33(14), 1803–1818.
31.
ShinY., YuB., & Greenwood-NimmoM. (2014). Modelling asymmetric cointegration and dynamic multipliers in a nonlinear ARDL framework. In HorraceW. C. & SicklesR. C. (Eds.), Festschrift in honor of Peter Schmidt (pp. 281–314). Springer.
32.
VelascoA. (2000). Debts and deficits with fragmented fiscal policymaking. Journal of Public Economics, 76(1), 105–125.
33.
Von HagenJ., & HardenI. J. (1995). Budget processes and commitment to fiscal discipline. European Economic Review, 39(3–4), 771–779.
34.
Von HagenJ., & WolffG. B. (2006). What do deficits tell us about debt? Empirical evidence on creative accounting with fiscal rules in the EU. Journal of Banking & Finance, 30(12), 3259–3279.
