SUSTAINING GOVERNMENT BUDGET DEFICITS AS A CAUSE FOR THE COST OF PUBLIC DEBT SERVICE INCREASE IN WESTERN EUROPEAN COUNTRIES IN THE 1995-2015 PERIOD
SUSTAINING GOVERNMENT BUDGET DEFICITS AS A CAUSE FOR THE COST OF PUBLIC DEBT SERVICE INCREASE IN WESTERN EUROPEAN COUNTRIES IN THE 1995-2015 PERIOD

Summary/Abstract: More and more results of econometric modeling research are showing the relationship betweenthe value of general government deficit and the costs of public debt service. The correlationanalysis conducted for the purposes of this work confirms strong negative dependencebetween the average general government balance (in relation to GDP) and the averageyield of 10-year treasury bonds in 15 Western countries within the EU in the 1995–2015period (sustaining higher deficits of general government are accompanied with higher costsof public debt service over a long period of time). Pearson’s correlation coefficient for theentire research period amounted to –0,78. This dependence increased after the breakout ofthe financial crisis – within the 2008–2015 period, Pearson’s r = –0,71, whereas during the1995–2007 period, it was –0,63, which is consistent with the research results pointing outthat the condition of public finances affects the decisions of investors in crises greater than inthe relatively calm periods.

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