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Public Policies Influence on Fiscal Deficit in the EU-28: Common Correlated Effects Approach

Kosta Josifidis, Radmila Dragutinovíc Mitrovíc (), Olgica Glavaski () and Novica Supíc ()
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Kosta Josifidis: University of Novi Sad
Radmila Dragutinovíc Mitrovíc: Univesity of Belgrade
Olgica Glavaski: University of Novi Sad
Novica Supíc: University of Novi Sad

Hacienda Pública Española, 2018, vol. 227, issue 4, 63-101

Abstract: This paper empirically investigates heterogeneous effects of different public policies (health, education, pension expenditure) on fiscal deficit in the circumstances when fiscal sustainability became questionable in EU economies. The research is based on the sample of EU-28 over the period 19952015. The empirical analysis is conducted within the econometric framework of heterogeneous, crosssectional dependent panels, using common correlated effects approach. According to the main findings of the paper, different effects of public policies between groups of developed and emerging European economies are evident but not crucial. These effects on fiscal deficit are heterogeneous across all countries, with different magnitude of pension, health and education expenditure impact. Due to the population ageing, pension expenditure has the most frequent and the most intensive influence on fiscal deficit deepening, following by education expenses. It means that policymakers are facing with trade-off related to old/young population, and that they are mostly oriented toward old population (voters).

Keywords: Public policies; Fiscal deficit; EU-28; Common correlated effects; Heterogeneous panels (search for similar items in EconPapers)
JEL-codes: H50 H62 C33 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:hpe:journl:y:2018:v:227:i:4:p:63-101