We have analyzed the behaviour of primary fiscal balance and public debt in
Serbia before and in the aftermath of the global financial crisis. The
results of our analysis are: i) public debt to GDP ratioexhibits (near) unit
root behaviour with an overall upward time trend; ii) the response of primary
fiscal balance to public debt has been insufficient to mean revert the upward
trend in government debt; iii) the efforts of the Serbian government to repay
the debt principal after the fiscal rule breach have not been persistent,
providing empirical support to the fiscal fatigue hypothesis; iv) the
government budget constraint has deteriorated since the beginning of the
global financial crisis; v) the response of primary fiscal balance to public
debt from the onset of the global financial crisis has dropped more severely
in comparison to other European economies.
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