Green Bond Market Development and Fiscal Sustainability in the EU: Drivers of Market Entry and Depth

Green bond markets have expanded rapidly across the European Union, but development remains uneven across Member States. Using a balanced EU-27 panel for 2021–2025, this study distinguishes sovereign market entry from the depth of the overall green debt market. Pooled Probit and Tobit estimates show that larger economies are substantially more likely to issue sovereign green bonds, whereas government debt and the budget balance are not significantly associated with entry. Market depth is positively associated with economic scale and a stronger budget balance, although the latter relationship partly overlaps with institutional quality. Environmental taxation is not significantly associated with market depth, providing no evidence of substitution for green debt financing. The findings support measures to lower entry costs and strengthen institutional capacity in smaller Member States.