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Government Debt and Economic Freedom in the CEE countries. Less is More

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  • Petru-Ovidiu Mura
  • Liliana Eva Donath

Abstract

Government debt has increased not only in times of economic stress, but it has become a com- mon manifestation of government expenditure funding. The aim of the paper is to inspect the effect of government debt on economic freedom in ten CEE countries between 1995 and 2020 using a panel model approach. Selected quantitative and qualitative variables were examined to validate the hypothesis, including public governance indicators, besides the economic ones. Based on a robust panel setting, we conclude that government debt has a negative impact on economic freedom. A causality from government debt to economic freedom is detected to- gether with a long-term equilibrium relationship between them, with both a long-run and a short-run negative impact of debt on economic freedom. For the considered countries, the gross debt impacts economic freedom and not vice-versa.

Suggested Citation

  • Petru-Ovidiu Mura & Liliana Eva Donath, 2023. "Government Debt and Economic Freedom in the CEE countries. Less is More," Prague Economic Papers, Prague University of Economics and Business, vol. 2023(4), pages 350-366.
    • Handle: RePEc:prg:jnlpep:v:2023:y:2023:i:4:id:834:p:350-366
    DOI: 10.18267/j.pep.834
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    References listed on IDEAS

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    1. Berggren, Niclas, 2003. "The Benefits of Economic Freedom: A Survey," Ratio Working Papers 4, The Ratio Institute.
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    More about this item

    Keywords

    government debt; economic freedom; CEE countries; fixed and random effects; Granger causality; Vector Error Correction Model;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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