Government Debt and Economic Freedom in the CEE countries. Less is More

Government debt has increased not only in times of economic stress, but it has become a common manifestation of government expenditure funding. The aim of the paper is to inspect the effect of government debt on economic freedom in ten CEE countries between 1995 and 2020 using a panel model approach. Selected quantitative and qualitative variables were examined to validate the hypothesis, including public governance indicators, besides the economic ones. Based on a robust panel setting, we conclude that government debt has a negative impact on economic freedom. A causality from government debt to economic freedom is detected together with a long-term equilibrium relationship between them, with both a long-run and a short-run negative impact of debt on economic freedom. For the considered countries, the gross debt impacts economic freedom and not vice-versa.