Fiscal decentralization and public debt: New evidence from EU countries

Abstract

The aim of the paper is to examine the relationship between fiscal decentralization and government debt of EU countries with respect to EU accession, country size and number of government levels in the period of 1999 – 2019 using panel data models based on six various estimators. The differences regarding the effect of fiscal decentralization on government debt were estimated on the basis of the seemingly unrelated regression (SUR). The research results have shown the following: 1. The effect of fiscal decentralization on public debt is statistically significant. 2. Fiscal decentralization has negatively affected public debt of EU member states in the observed period. 3. The direction and intensity of the effect of fiscal decentralization on public debt depends on the size of the country (measured by the number of its inhabitants), the number of government levels and the year of the country’s accession to the EU.