Abstract
The aim of this paper is to provide a comprehensive study of public debt, emphasizing the existing distinctions between the emerging and advanced economies across the European Union. Using annual data ranging from 1995 to 2013, we conducted a manifold investigation. Firstly, we studied the descriptive statistics of key variables affecting public debt dynamics. We found that the ex-communist countries recorded lower public debt ratios, negative flow costs and primary deficits. By comparison, the advanced economies achieved primary surpluses in order to balance larger public debt-to-GDP ratios and positive flow costs. Secondly, using the accounting approach we analyzed the dynamics of public debt. The results indicated unstable patterns for the Czech Republic, Latvia, Lithuania, Poland, Slovakia, Slovenia, Cyprus, France, Germany, Greece, Ireland, Italy, Malta, Portugal, Spain and the United Kingdom. Employing a logit model with fixed effects, we also showed that running primary deficits is more likely to increase the probability of having unstable dynamics of public debt. Thirdly, we examined the distribution of the flow cost which revealed the existence of fat tails, suggesting an increased likelihood of large debt burdens. We also found that the uncertainty of the future debt burden is mainly driven by the variability of the real GDP growth rate.
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Notes
Croatia is not included in our analysis due to lack of sufficient data.
Following Aizenman and Pasricha (2010), we refer to the differential between the real interest rate on public debt and the real GDP growth rate as the flow cost and to the product between the flow cost and the public debt-to-GDP ratio as the debt burden.
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Acknowledgments
We express our gratitude for useful comments and suggestions to Elias Soukiazs (University of Coimbra), Dimitros Paparas (Harper Adams University), Enrico Marelli (University of Brescia) and to the participants at the 16th INFER Annual Conference (Pescara, Italy). This paper was co-financed from the European Social Fund, through the Sectorial Operational Programme Human Resources Development 2007–2013, project number POSDRU/159/1.5/S/138907 “Excellence in scientific interdisciplinary research, doctoral and postdoctoral, in the economic, social and medical fields -EXCELIS”, coordinator: The Bucharest University of Economic Studies.
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Stoian, A., Iorgulescu, F. The study of public debt: which are the distinctions between the emerging and advanced economies in the European Union?. Empirica 43, 167–196 (2016). https://doi.org/10.1007/s10663-015-9299-x
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DOI: https://doi.org/10.1007/s10663-015-9299-x