Where
PS = primary budget surplus-to-GDP ratio.
PLt = debt-to-GDP ratio.
Bohn (1998) derives a policy rule or reaction function which is consistent with the rational behavior. Bohn’s
(1998) test of debt sustainability determines whether government is taking suitable measures of confirm inter
temporal budget constraint by surplus-to-GDP ratio and debt-to-GDP ratio or not. The following equation was
estimated by Bohn (1998) to test debt sustainability.