Primary balance, public debt and fiscal variables in postsocialist members of the European union

Abstract

The primary balance has influenced the unit costs of debt servicing in 10 postsocialist members of the EU. The effects of the GDP growth and the inflation are equally robust and significant. The coefficients of lagged debt are at variance with the expectations from Bonn's 1998 paper, and one cannot speak until now about the corrective actions of fiscal authorities in these countries. Only Poland has had on average a higher real long-term interest rate than the growth rate. Other countries could stabilize their debt-GDP ratio by running a primary deficit. But comparing the level of investment with profits only in Slovenia one can speak about the dynamic inefficiency. Especially in the Czech Republic and Slovakia the relationship between debt and deficit is blurred by high negative stock-flow adjustments.