Abstract
This paper analyses the dynamics of public debt growth in Serbia between the fourth quarter of 2004 (2004Q4) and the same quarter of 2017 (2017Q4). The empirical estimates capture the upward shift in public debt growth from the onset of the Great Recession. The results also show how policy makers have managed to curb the growth of public indebtedness in Serbia between 2014Q4-2017Q4. The government should, however, put greater fiscal efforts to reduce the overall share of public debt in gross domestic product in accordance with the fiscal rules of the Republic of Serbia and the Maastricht convergence criteria.
Highlights
This paper analyses the dynamics of public debt growth in Serbia between the fourth quarter of 2004 (2004Q4) and the same quarter of 2017 (2017Q4)
This paper investigates the dynamics of public debt growth in Serbia between 2004Q4 and 2017Q4
The government managed to curb the growth of public indebtedness which led to the stabilization of public debt around 70% of GDP in the first 2 years of fiscal consolidation programme, and its subsequent decline to around 65% of GDP at the end of 2017
Summary
Cafiso (2012) defines the growth of public debt ∆Bt as:. In equation (1), Bt stands for the stock of public debt at time t, Bt-1 is the stock of public debt from the previous time period t1, PBt denotes primary fiscal balance, defined as the difference between overall government revenues and primary government expenditures, while it represents implicit nominal interest rate in time period t on Bt-1. SFAt measures stock-flow adjustments which are equal to the difference between public debt growth and the officially reported overall fiscal deficit. Bai and Perron (2003a, 2003b) propose the following algorithm for determining the overall number of structural breaks: 1) prespecify the upper bound for the number of breaks M by setting the value of trimming percentage ε; 2) test the null hypothesis of no structural break against the alternative of a prespecified number of breaks defined in step 1) by using double maximum tests of Bai and Perron (1998); 3) if double maximum tests indicate the presence of at least one structural break, proceed with the application of supFT (l+1|l) test by selecting M such that supFT (l+1|l) is insignificant for l ≥ M. The results of Bai (1997) support more general forms of non-linearity, especially with respect to the number of breakpoints and with respect to the statistical properties of disturbance terms.
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