The study of public debt: which are the distinctions between the emerging and advanced economies in the European Union?

The aim of this paper is to provide a comprehensive study of public debt, emphasising the existing distinctions between the emerging and advanced economies across the European Union. Using annual data ranging from 1995 to 2013, we conduct a manifold investigation. Firstly, we study the descriptive statistics of key variables affecting public debt dynamics. We find that the ex-communist countries recorded lower public debt ratios, negative flow costs and primary deficits. By comparison, the advanced economies achieved primary surpluses in order to balance larger public debt-to-GDP ratios and positive flow costs. Secondly, using the accounting approach we analyse the dynamics of public debt. The results indicate unstable patterns for the Czech Republic, Latvia, Lithuania, Poland, Slovakia, Slovenia, Cyprus, France, Germany, Greece, Ireland, Italy, Malta, Portugal, Spain and the UK. Employing a logit model with fixed effects, we also show that running primary deficits is more likely to increase the probability of having unstable dynamics of public debt. Thirdly, we examine the distribution of the flow cost which revealed the existence of fat tails, suggesting an increased likelihood of large debt burdens. We also find that the uncertainty of the future debt burden is mainly driven by the variability of the real GDP growth rate.