Trends in public debt sustainability in Central and Eastern EU countries

The topic of public debt sustainability has been in the spotlight in the economic literature since the crisis of 2008. In this paper, we study governments’ reactions to the accumulation of debt from 11 CEECs, using annual data from 2000 to 2019. The empirical approach applied in the paper includes both panel data regression and time series estimations using penalised spline regression. We use a semi-parametric model with time-varying coefficients and we include in the model some variables that reflect both economic and institutional dimensions, which are particularly relevant in the case of CEECs. Empirical results show that only a few countries have pursued sustainable public debt policies. But the decreasing time path of the smooth term shows a weak sustainability policy, even for these countries. Our results emphasise that these countries’ authorities should place more importance on the stabilisation of public debt and should maintain prudent fiscal policy.