Macroeconomic Prospects for Public Finance Management Sustainability: An Econometric Approach for Debt in Central and Eastern European Countries

Abstract

This paper presents the evolution of the level of public debt in Central and Eastern European countries outside the Monetary Union and explores the sustainability of public debt through the analysis of socioeconomic and institutional factors. We analyze the relationship between economic factors (budget deficit, economic growth rate, interest rate), social factors (unemployment rate, life expectancy), institutional factors (efficiency of public administration, degree of democratization, level of corruption) and public debt. Research on this geographical area has been relatively scarce. Using an OLS regression design, the results indicate and quantify the importance of the dynamics between public debt, budget deficit, interest rate, and economic growth. We find that, for CEE countries, sustainability of the public debt/GDP level depends to a high extent on life expectancy: 1 percentage point increase in life expectancy leads to an increase in public debt of approximately 6.5%. The results have significant policy implications as high levels of debt can strain government finances, leading to potential fiscal crises.

Keywords

• fiscal policies
• keynesian approach
• public debt
• sustainability
• public finance management