Janusz Kudła
pages: 76-86;
JEL classification: H71, H26, H72;
Keywords: public debt dynamics, interest-rate-growth-differential, primary balance;
Abstract: The paper strives to determine the impact of fiscal variables on factors determining the dynamics
of public debt in European Union countries. Based on the literature, the dynamics of public debt
are determined by changes of three elements: the primary balance, interest-rate-growth-differential
and the change of government assets. Therefore, it seems reasonable to estimate the dynamics
of these three values to find the variables crucial for limiting the growth of public debt. Three groups
of dynamic panel regressions were estimated based on the one-step Generalized Method of
Moments. The data was collected for the 1995-2015 period for 27 EU countries. Dependent variables
included: primary balance, interest-rate-growth-differential and change of government assets.
Independent variables consisted of: interest payable to GDP ratio, unemployment rate, squared
unemployment rate, FDI stock to GDP, net FDI inflow to GDP, general government expenditures to
GDP, share of social security expenditures and openness of the economy measured by the ratio of
export and import to GDP. On the basis of statistical data, three components of debt changes were
distinguished, and estimations of the dynamic panel regressions were applied to find the impact of
independent variables. According to the basic models, the primary balance is lower for: countries
with higher unemployment, greater FDI stock and higher general government expenditures.