Investigating the Determinants of Public Debt Sustainability for European Union Countries

Abstract

This study investigates the determinants of public debt sustainability in the European Union (EU) countries, focusing on the combined effects of the COVID-19 pandemic and the Ukraine conflict. Utilizing the Generalized Method of Moments (GMM) for the 2000-2022 period to address the endogeneity and heterogeneity aspects, the research incorporates various factors, such as military and healthcare expenditures, private debt, and political stability to provide a comprehensive analysis of public debt dynamics. The findings revealed that lagged debt has a significant positive impact on current public debt, indicating its persistence over time. Economic downturns, military spending, and private debt are identified as key drivers of rising public debt, especially during periods of geopolitical tension and economic instability. Additionally, the study highlighted the roles of GDP per capita, inflation, and government expenditure in influencing fiscal stability. The research underscores the importance of adopting long-term fiscal discipline and counter-cyclical measures to manage public debt, particularly during crises. The study offers a comprehensive and original perspective upon the dynamics of EU countries’ public debt and suggests that fiscal policies encouraging investments and supporting political stability contribute to the sustainable management of public debt.

Keywords

• public debt sustainability
• covid-19 pandemic
• generalized method of moments
• fiscal policy
• european union.