PUBLIC DEBT SUSTAINABILITY IN POST-2000 EU MEMBER STATES WITH EURO ADOPTION: A PENALIZED SPLINE REGRESSION APPROACH

The sustainability of public debt has gained renewed attention in the aftermath of the 2008 financial crisis, the COVID-19 pandemic, and recent geopolitical tensions. This paper investigates long-term debt sustainability in Eurozone countries that acceded post-2000 analyzing fiscal dynamics from 2000–2023. Using penalized spline regression in a semi-parametric time series framework, we evaluate fiscal dynamics while incorporating institutional determinants such as political stability and the absence of violence/terrorism and macroeconomic indicators like the unemployment rate (as a percentage of the total labor force). Our results show that Croatia, Latvia, Malta, and Slovenia have exhibited relatively sustainable debt policies, while other countries show weaker or statistically insignificant sustainability signals. Among the models tested, the one including political stability and the absence of violence/terrorism performed best, suggesting that institutional stability is a key determinant of fiscal sustainability. These findings emphasize the importance of integrating institutional dimensions into debt analysis and provide valuable insights for policymakers seeking to enhance fiscal resilience in the Eurozone’s newer member states.