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Debt Limit, Fiscal Space and Fiscal Fatigue in the Central and Eastern European Countries of EU

Author

Listed:
  • IANCU, AUREL

    (National Institute for Economic Research - Romanian Academy)

  • OLTEANU, DAN CONSTANTIN

    (National Institute for Economic Research - Romanian Academy)

Abstract

This study analyzes the correlation between the primary budget balance and the public debt over the last two decades, for a panel of 12 countries from Central and Eastern Europe, in order to assess their debt sustainability, the level of debt at which fiscal fatigue may occur, as well as the degree of risk of fiscal fatigue, depending on the past and future evolution of public debt. First, using estimates of the cubic fiscal reaction function and two variants (quadratic / linear) of the financing cost function, we determined the equilibrium level of public debt as percentage of GDP, the” fiscal fatigue” point and the debt limit, for the whole panel and for each country. Second, by using the common (from panel regressions) and country-specific coefficients, and public debt projection for 10 and 5 years, we evaluated the level of risk for fiscal fatigue, in relation to the future evolution of public debt and other financial indicators.

Suggested Citation

  • Iancu, Aurel & Olteanu, Dan Constantin, 2023. "Debt Limit, Fiscal Space and Fiscal Fatigue in the Central and Eastern European Countries of EU," Working Papers of National Institute for Economic Research 230629, Institutul National de Cercetari Economice (INCE).
    • Handle: RePEc:ror:wpince:230629
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    More about this item

    Keywords

    primary balance; public debt; fiscal policy; fiscal space; fiscal fatigue;
    All these keywords.

    JEL classification:

    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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