Testing the macroeconomic impact of the budget deficit in EU Member States using linear regression with fixed effects

Abstract

The article aims to research impact of budget balance, whether surplus or deficit, on the main indicator characterizing the economic growth of a country, namely GDP and the inflation rate in the 27 European Union Member States and the United Kingdom. For this analysis was used panel data, taking into account the period from 2001 to 2015. The method used for the analysis is the linear regression with fixed effects and with Driscoll-Kraay standard errors. The dependent variables are the growth rate of real GDP and the inflation rate, and the independent variable is the budget balance (surplus or deficit). The results obtained after using econometric software Stata shows a positive impact of budget balance on growth in the European Union for the analyzed period.

Keywords

• budget balance
• GDP
• the inflation rate
• linear regression