PUBLIC DEBT SUSTAINABILITY IN THE EU DEVELOPED COUNTRIES

Abstract

After the global financial crisis in 2008, the topic of public debt sustainability has increased in relevance for the economic literature, causing significant economic structural changes in the affected countries and substantial debates whether the public debt and its projected path are consistent with those of the government's revenues and expenditures. The paper tackles the average reaction coefficients of the primary surplus relative to GDP to variations concerning the debt of the EU most developed economies, using time series data from 2000. The estimated model introduces some control variables that account for the specificities of these countries, namely the domestic credit to private sector and the economic freedom index. In order to estimate the time-varying coefficients, the penalized spline regression model is employed, which is more robust than the OLS estimation.

Keywords

• public debt;
• penalized spline regressions;