Original scientific paper

https://doi.org/10.3935/rsp.v27i1.1676

Public Debt Dynamics in the Western Balkans: Do Social Expenditures and Economic Growth Matter?

Milena Radonjić ; The Faculty of Economic, University of Montenegro
Jovan Đurašković
Milivoje Radović
Julija Cerovic Smolovic

Abstract

The aim of this paper is to examine the determinants of public debt in the Western Balkan countries, with an emphasis on the effects of economic growth and social expenditures. The study covers the period 2006-2017, and we implement the dynamic panel GMM estimation, using both first-difference and system GMM. The results suggest that incremental growth change significantly reduces debt, while social expenditures push the debt-to-GDP ratio up. Also, there is a negative relation between inflation and debt, while interest payments on previous borrowing increase public debt additionally. Finally, unemployment is not statistically significant in this setting. The main policy implication is that policy makers in these countries should favor a growth-oriented policy toolbox and efficiency-oriented social reforms, in order to keep the public debt sustainable in the long run.

Keywords

debt and growth; social expenditure; the Western Balkans

Hrčak ID:

236107

URI

https://hrcak.srce.hr/236107

Publication date:

20.3.2020.

Article data in other languages: croatian

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