engleski

Public debt-to-GDP ratio in new EU member states: cut the numerator or increase the denominator?

This paper analyses public debt determinants in EU new member states. The aim of the analysis is to examine their fiscal position, as well as to offer proposals for a more successful containment of the rising public 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? The 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.

debt crisis ; economic growth ; fiscal consolidation ; new EU member states ; sovereign debt

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