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Zugriffsbeschränkung
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Abstract

This paper empirically studies public debt sustainability with the penalized panel

splines approach for 25 EU economies from 2000 to 2019 by estimating the response

of the primary surplus to lagged debt relative to GDP, respectively. A positive

coecient on average indicates sustainable policies, which is supported by all our

results. Moreover, we show that this relationship is not homogeneous across the

distribution of the debt ratios, but, varies with the magnitude of public debt to

GDP. The estimations reveal a strongly increasing reaction for small and high debt

ratios while it is rather flat for intermediate levels. This holds for normal times, too,

whereas during years of economic crises a monotonously increasing response can be

observed. Additionally, for a cluster consisting of smaller EU economies, there is

indication of 'fiscal fatigue', meaning that the effort of active fiscal counter-steering

peters out for high ratios of public debt to GDP. The same effect can be observed for

the whole sample and for a sample including the large EU economies, once Greece

is removed.