Prague Economic Papers 2025, 34(1):26-44 | DOI: 10.18267/j.pep.887

Does Public Debt Crowd Out Public Investment in Central and Eastern European economies? A Dynamic Approach Using CS-ARDL

Milena Konatar ORCID..., Jovan Đurašković, Nemanja Popović ORCID..., Milivoje Radović
Milena Konatar: corresponding author, Faculty of Economics, University of Montenegro, Podgorica, Montenegro
Jovan Đurašković: Faculty of Economics, University of Montenegro, Podgorica, Montenegro
Nemanja Popović: Faculty of Economics, University of Montenegro, Podgorica, Montenegro
Milivoje Radović: Faculty of Economics, University of Montenegro, Podgorica, Montenegro

This study estimates the impact of public debt on public investment in Central and Eastern European (CEE) economies. We implement Cross-sectionally Augmented Autoregressive Distributed Lag (CS-ARDL) model, which effectively handles cross-sectional dependence and slope heterogeneity, while dealing with short- and long-run coefficients simultaneously. The results indicate the existence of both short- and long-term crowding out effects of public debt on public investment in the CEE region. These findings have significant fiscal policy repercussions, particularly in context marked by constrained financial resources and substantial debt loads, as has been the case in a number of CEE economies.

Keywords: public debt, public investment, CEE countries, CS-ARDL
JEL classification: C33, E22, E60, O52

Received: November 25, 2024; Revised: February 26, 2025; Accepted: March 11, 2025; Published: May 7, 2025  Show citation

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Konatar, M., Đurašković, J., Popović, N., & Radović, M. (2025). Does Public Debt Crowd Out Public Investment in Central and Eastern European economies? A Dynamic Approach Using CS-ARDL. Prague Economic Papers, 34(1), 26-44. doi: 10.18267/j.pep.887
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