The Impact of Public Finance Management on Sustainable Development and Competitiveness in EU Member States

TLDR: In this paper, an approach based on panel models (individual vs. random effects) verified with a Hausman specification test was used to examine to what extent EU member states' public spending can have a real impact on changing performance indicators for goals related to competitiveness and sustainable development.

Abstract: The social and economic policy pursued by national and European authorities is supported by the redistribution of public funds. Choices made by European member states regarding the relevant scale of redistribution should promote the individual nation’s sustainable development and competitiveness. Increased capital and workforce flows strengthen so-called fiscal and spending competition, which weakens governments’ capacity for running an autonomous fiscal policy. In EU countries, however, there are still quite significant differences between the basic parameters of fiscal and spending systems, indicating that governments are not as powerless as is often claimed. Further, the fact that elements of fiscal policy have consequences for a country’s competitiveness should not be overlooked. Keeping this in mind, the main purpose of this article is to examine to what extent EU member states’ public spending can have a real impact on changing performance indicators for goals related to competitiveness and sustainable development. To this end, an approach based on panel models (individual vs. random effects) verified with a Hausman specification test was used. Our findings demonstrate the significant impact of an active spending policy on the indicators selected for analysis, i.e. indicators related to the stable development and competitiveness of EU member states within the period of 2008–2018. Our research results have also shown that to measure competitiveness there is a need to integrate a number of varied economic, social and innovative factors to analyze the growth potential of a particular country. In turn, our model studies demonstrate that countries where the fiscal deficit is below 3% of GDP can implement a sustainable development policy more effectively, thus promoting competitiveness, instead of the periodic shocks and budget cuts which accompany remedial processes and procedures to alleviate excessive deficits.