The Role and Impact of Public Debt in Financing the Budget Deficit and the Economy: The Case of Kosovo
Purpose: This paper explores the relationship between the budget deficit and public debt, as well as their effects on GDP in Kosovo. The aim of the paper is to determine the empirical relationship between Kosovo’s public debt and budget deficit in macroeconomic terms. So, the main purpose of this paper consists in the analysis of the progress of the budget deficit as well as the public debt in the Republic of Kosovo and in developing countries. In the framework of the paper, the level of the budget deficit and public debt in the Republic of Kosovo is shown. It also reflects the level of public debt in Kosovo and in the countries of the region. Design/methodology/approach: To cover the budget deficit, states take the steps of going into debt, which is negatively expressed in economic flows. The countries of the region, including Kosovo with a low level of development, are faced with public debt in recent years. In financial theory and practice, public debt is one of the forms of public revenue to finance public functions of the state, or public needs. Findings: For the finalization of the paper, mainly the method of analysis and synthesis, tabular and graphic separately, comparative methods, etc. are used. Through this study, we aim for the given conclusions and recommendations to be taken into consideration and serve the actors in the field of public finance. Empirical studies on debt sustainability in the last decade have been numerous and have gained importance after the most recent global financial and debt crisis. Most of these studies address the issue of good management for the creation of affordable debt. Practical implications: Studies on public debt and fiscal deficit in Kosovo are scarce, and as such this paper is mainly guided by a literature review of studies that focus either on external public debt or on domestic public debt and their effects on GDP. Originality value: Efficient management of public debt and budget deficit is of great importance for economic growth and its sustainability in the future.