Public Debt-to-GDP Ratio in New EU Member States: Cut the Numerator or Increase the Denominator?

Tomislav Globan and Marina Matošec ()
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Marina Matošec: Faculty of Economics and Business, University of Zagreb, Trg J. F. Kennedyja 6, 10000 Zagreb, Croatia.

Journal for Economic Forecasting, 2016, issue 3, 57-72

Abstract: This paper analyses public debt determinants in EU new member states. The aim is to examine the fiscal position of these countries, as well as to offer proposals for a more successful containment of the rising debt levels. The paper attempts to answer the key question: does fiscal consolidation (the numerator) or economic growth (the denominator) have a stronger impact in determining the debt-to-GDP ratio? Results of the panel data analysis showed that by achieving a more balanced government budget, public debt growth decreases, but the effect is rather small. Conversely, estimated GDP growth parameters are much greater. Results imply that the sovereign debt crisis should be resolved by stimulating economic growth, while bearing in mind the high price of potentially irresponsible public finance management.

Keywords: debt crisis; economic growth; fiscal consolidation; new EU member states; sovereign debt (search for similar items in EconPapers)
JEL-codes: H60 H62 H63 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:rjr:romjef:v::y:2016:i:3:p:57-72

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