Fiscal sustainability is associated with the idea that governments can continue with the existing fiscal policies indefinitely and remain solvent. This article examines the fiscal sustainability of Tamil Nadu by looking at four major deficit indicators, viz, the revenue deficit, the primary revenue balance, the primary deficit and the gross fiscal gap using the Gregory- Hansen Cointegration test. It contends that if revenues and expenditures are both difference stationary and cointegrated, the fiscal stance is sustainable. Alternatively, if revenues and expenditures are difference stationary but not cointegrated, then the fiscal position is deemed to be unsustainable. Evidence for Tamil Nadu using annual data for 1971-2006 finds that when considered in real terms with the exception of the gross fiscal gap, the other three deficit indicators - the revenue deficit, the primary deficit and the primary revenue balance - are not sustainable.
