Debt Uncertainty and Economic Growth in Emerging European Economies: Some Empirical Evidence

This study investigates the effects of public debt uncertainty on economic growth in 10 emerging European economies over 2000–2015 period. Public debt uncertainty reflects fiscal policy volatility and macroeconomic instability. It also creates uncertainty about the characteristics of future fiscal policy, which further causes the rise of uncertainty in household and business incomes. Increasing the risk of future incomes leads to the reduction of household consumption and corporate investments, which negatively influences economic growth. An empirical analysis of public debt uncertainty impact on economic growth is performed by time series and panel data approaches based on quarterly data. Our key result indicates the significant detrimental effect public debt uncertainty has had on the GDP growth in emerging European economies, especially during the Great Recession episode that started in 2008. Robustness of our econometric findings is confirmed by different estimation methods and model specifications.