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The Impact Of Geopolitical Crises On Fiscal And Budgetary Stability

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  • PAPAINOG, Maria-Teodora

    (Doctoral School of International Business and Economics, Bucharest University of Economic Studies, Romania)

Abstract

This study explores the relationship between geopolitical risk and fiscal-budgetary stability of countries, focusing on how external instability impacts the dynamics of the budget deficit. Using a dynamic System GMM (Arellano-Bover/Blundell-Bond) model on a panel dataset of 25 OECD member countries. The empirical results indicate three fundamental aspects: (i) the existence of significant fiscal inertia, through the positive influence of the lagged value of the deficit on the current one; (ii) a negative relationship between geopolitical risk and the current level of the budget deficit, which suggests a tendency for governments to implement more prudent fiscal policies in times of international uncertainty; and (iii) political stability is found to be a factor favourable to fiscal balance, especially in developed countries, where a predictable political climate and solid institutions allow the formulation and implementation of consistent fiscal policies. Thus, this underlines the importance of a stable policy framework as a foundation for fiscal sustainability, especially in the face of external shocks or high fiscal pressures.

Suggested Citation

  • PAPAINOG, Maria-Teodora, 2026. "The Impact Of Geopolitical Crises On Fiscal And Budgetary Stability," Studii Financiare (Financial Studies), Centre of Financial and Monetary Research "Victor Slavescu", vol. 30(1), pages 110-124, March.
    • Handle: RePEc:vls:finstu:v:30:y:2026:i:1:p:110-124
    DOI: https://doi.org/10.65672/fs.2026.1.6
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    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management

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