WHAT IS THE PURPOSE OF THE PUBLIC DEBT IN NORTH MACEDONIA - CURRENT, CAPITAL OR SOCIAL SPENDING
Keywords:
VARMAX model, public debt, social expediture, capital expenditure, current budget expenditures
Abstract
North Macedonia, as one of the small and open economies in the region, is facing an increase in the budget deficit and public debt (especially in the last couple of years), which, in conditions of reduced fiscal capacity, is increasingly emphasizing the issue of the distribution of funds from borrowing. The government’s intention is to increase public debt to generate investments in the infrastructure and create future benefits for the economy as a whole, as well as the potential for future debt recovery. But, is this really the case? In reality, capital expenditures are stagnating, while current budget expenditure and social transfers are constantly rising. This paper investigates the dynamics of the rise in public debt and the trends in capital expenditure, current expenditure, and social transfers. Furthermore, we explore the effects each category of social transfers (pensions, unemployment benefits, social assistance, and health insurance transfers) has on the level of public debt in the country. We employ a VARMAX model on quarterly data from 2008 to the second quartile of 2022. The results of the VARMAX model show that a short-term increase follows the shock in public debt in the current budget expenditure. This suggests that the government has been increasing the public debt mostly to finance current budget expenditures instead of investing in economic and social infrastructure. In addition, the analysis of the relationship between the public debt and the four different categories of social transfers shows that the shock in public debt is followed by a short-term increase in health insurance transfers.
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Trenovski, B., Merdzan, G., & Peovski, F. (2022). Municipal Revenue Determinants in the South-Eastern European Economy: Evidence from North Macedonia. Studia Regionalne i Lokalne Issue number 87, page 22-36. doi: 10.7366/1509499518702
Trenovski, B., & Mijovic-Spasova, T. (2018). Public Debt in Southeast Europe – Why to enable public participation?. MPRA Paper No. 88381. Online at https://mpra.ub.uni-muenchen.de/88381/
Velichkovska, K., & Sadiku, L. (2019). GOVERNMENT EXPENDITURES EFFECTS ON ECONOMIC GROWTH IN THE REPUBLIC OF MACEDONIA. Trends in Economics, Finance and Management Journal, Vol. 1, Issue 1. https://www.researchgate.net/publication/366897364_GOVERNMENT_EXPENDITURES_EFFECTS_ON_ECONOMIC_GROWTH_IN_THE_REPUBLIC_OF_MACEDONIA
Veljanovska Blazhevska, K. (2022). The Social Security Policy of the Republic of North Macedonia: Reform Process, Opportunities and Perspectives. Social Security in the Balkans – Volume 2. DOI: https://doi.org/10.1163/9789004306899_003
Vučić, V., Marinović Matović, I., & Kostić, Z. (2020). PUBLIC REVENUES AND PUBLIC EXPENDITURES ANALYSIS IN SOUTHEAST EUROPEAN COUNTRIES. KNOWLEDGE - International Journal, 38(1), 45–51. Retrieved from https://ikm.mk/ojs/index.php/kij/article/view/1101
Alesina, A., Campante, F. R., & Tabellini, G. (2006). Why is fiscal policy often procyclical? Journal of the European Economic Association, 6(5), 1006-1036.
Cecchetti, S. G., Mohanty, M. S., & Zampolli, F. (2011). The real effects of debt. BIS Working Papers No. 352.
Cvetanoska Mitev, M., & Trpeski, P. (2022). THE IMPACT OF HEALTH EXPENDITURE ON ECONOMIC GROWTH IN NORTH MACEDONIA – APPLICATION OF LUCAS MODEL. Vol. 11 No. 24 (2022): Зборник радова Економског факултета У Источном Сарајеву. DOI: https://doi.org/10.7251/ZREFIS2224045C
Djambaska, E. (2014). GOVERNMENT EXPENDITURES EFFECTS ON ECONOMIC GROWTH IN THE REPUBLIC OF MACEDONIA. Contemporary trends and prospects of economic recovery, CEMAFI International, Nice, France. https://www.researchgate.net/profile/Marija-Topuzovska-Latkovikj/publication/272019976_MACEDONIAN_YOUTH_POPULATION_AND_PROSPECTS_FOR_LABOR_MARKET_SUCCESS/links/54d8a76d0cf25013d03e8b33/MACEDONIAN-YOUTH-POPULATION-AND-PROSPECTS-FOR-LABOR-MARKET-SUCCESS.pdf#page=47
Djambaska, E., & Lozanoska, A. (2015). Capital expenditures and their importance for the economic growth in the Republic of Macedonia. Economic Development, Issue 3, page 107-120. https://www.ceeol.com/search/article-detail?id=306975
Favero, C. A., & Giavazzi, F. (2007). Debt and the effects of fiscal policy. NBER Working Paper No. 12822.
Fetai, B., Avdimetaj, K., Bexheti, A., & Malaj, A. (2020). Threshold effect of public debt on economic growth: An empirical analysis in the European transition countries. Zbornik radova Ekonomskog fakulteta u Rijeci : časopis za ekonomsku teoriju i praksu, Vol. 38 No. 2, 2020. https://doi.org/10.18045/zbefri.2020.2.381
Garvanlieva Andonova, V., Nikolov, M., Velkovska, I., & Petrovska, A. M. (2021). Economic growth agenda: The effects of full utilisation of capital budgets among statistical planning regions in North Macedonia. European Spatial Research and Policy, 28(2), 131–146. https://doi.org/10.18778/1231-1952.28.2.07
Holzner, M. (2022). Public Debt in Central, East, and Southeast Europe. CESifo Forum, ISSN 2190-717X, ifo Institut - Leibniz-Institut für Wirtschaftsforschung an der Universität München, München, Vol. 23, Iss. 01, pp. 35-39. http://hdl.handle.net/10419/250957
Ivanovski, Z., Narashanov, Z., & Korunovska, V. (2020). Granger Causality Test for the Government’s Capital Expenditures on the GDP of the Republic North Macedonia in VAR Environment. UTMS Journal of Economics 11(2): 183–201. https://utmsjoe.mk/files/Vol.11.No.2/GRANGER_CAUSALITY_TEST_FOR_THE_GOVERNMENTS_CAPITAL_EXPENDITURES_ON_THE_GDP_OF_THE_REPUBLIC_NORTH_MACEDONIA_IN_VAR_ENVIRONMENT.pdf
Leeper, E. M. (1991). Equilibria under 'active' and 'passive' monetary and fiscal policies. Journal of Monetary Economics, 27(1), 129-147.
Miftari, F., & Ziberi, B. (2019). PUBLIC INVESTMENTS INCENTIVE FACTORS OF ECONOMIC GROWTH - CASE STUDY OF REPUBLIC OF NORTH MACEDONIA. KNOWLEDGE - International Journal, 31(1), 187–192. https://doi.org/10.35120/kij3101187m
Nikoloski, A. (2020). The impact of public expenditures on economic growth of the Republic of North Macedonia. Technium Social Sciences JournalVol. 8, 249-258, June 2020ISSN: 2668-7798. https://techniumscience.com/index.php/socialsciences/article/view/742/274
Reinhart, C. M., & Rogoff, K. S. (2010). Growth in a time of debt. American Economic Review: Papers & Proceedings 100 (May 2010): 573–578. http://www.aeaweb.org/articles.php?doi=10.1257/aer.100.2.573
Shaqir, E.A. (2015). VOLUME AND STRUCTURE OF PUBLIC EXPENDITURES IN REPUBLIC OF MACEDONIA. INTERNATIONAL MULTIDISCIPLINARY SCIENTIFIC CONFERENCE ON SOCIAL SCIENCES AND ARTS SGEM 2015, Conference Proceedings. Том II. Book 2. 2015. DOI: 10.5593/SGEMSOCIAL2015/B22/S6.074
Sharlamanov, K., & Mitevska Petrusheva, K. (2022). Poverty as a Social Phenomenon in the Republic of North Macedonia. Social Security in the Balkans – Volume 2. DOI: https://doi.org/10.1163/9789004306899_005
Shkodra, J., Krasniqi, A., & Ahmeti, N. (2022). THE IMPACT OF GOVERNMENT EXPENDITURE ON ECONOMIC GROWTH IN SOUTHEAST EUROPEAN COUNTRIES. Journal of Management Information & Decision Sciences. 2022 Special Issue, Vol. 25, p1-7. 7p. https://www.researchgate.net/publication/357187673_The_impact_of_government_expenditure_on_economic_growth_in_Southeast_European_countries
Tashevska, B. (2018). SOCIAL EXPENDITURE IN THE EUROPEAN COUNTRIES. MACEDONIAN ACADEMY OF SCIENCES AND ARTS - CONTRIBUTIONS XLIX 1-2 2018. https://repository.ukim.mk/bitstream/20.500.12188/6644/1/Social%20expenditure%20in%20the%20European%20countries.pdf
Trenovski, B., Merdzan, G., & Peovski, F. (2022). Municipal Revenue Determinants in the South-Eastern European Economy: Evidence from North Macedonia. Studia Regionalne i Lokalne Issue number 87, page 22-36. doi: 10.7366/1509499518702
Trenovski, B., & Mijovic-Spasova, T. (2018). Public Debt in Southeast Europe – Why to enable public participation?. MPRA Paper No. 88381. Online at https://mpra.ub.uni-muenchen.de/88381/
Velichkovska, K., & Sadiku, L. (2019). GOVERNMENT EXPENDITURES EFFECTS ON ECONOMIC GROWTH IN THE REPUBLIC OF MACEDONIA. Trends in Economics, Finance and Management Journal, Vol. 1, Issue 1. https://www.researchgate.net/publication/366897364_GOVERNMENT_EXPENDITURES_EFFECTS_ON_ECONOMIC_GROWTH_IN_THE_REPUBLIC_OF_MACEDONIA
Veljanovska Blazhevska, K. (2022). The Social Security Policy of the Republic of North Macedonia: Reform Process, Opportunities and Perspectives. Social Security in the Balkans – Volume 2. DOI: https://doi.org/10.1163/9789004306899_003
Vučić, V., Marinović Matović, I., & Kostić, Z. (2020). PUBLIC REVENUES AND PUBLIC EXPENDITURES ANALYSIS IN SOUTHEAST EUROPEAN COUNTRIES. KNOWLEDGE - International Journal, 38(1), 45–51. Retrieved from https://ikm.mk/ojs/index.php/kij/article/view/1101
Published
2024/04/17
Section
Original Scientific Paper
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