Economic Themes (2025) 63 (4) 1, 401-415
Gordan Janković
Abstract: This paper examines the impact of public expenditure structure on the budget deficit in Western Balkan countries over the period 2008– 2023. Particular attention is given to the differentiated effects of current and capital expenditures, which are considered key drivers of fiscal (im)balance in the region. Using panel regression analysis, a comparative evaluation of three models—Pooled OLS, REM, and FEM—was conducted. Based on the results of the Breusch-Pagan LM and Hausman tests, the random effects model (REM) was identified as the most appropriate. The findings indicate that current expenditures have a negative and statistically significant effect on the budget deficit, while capital expenditures do not demonstrate a significant association. These results highlight the need to rationalize current spending and shift toward investment-oriented expenditures as a mechanism for achieving long-term fiscal sustainability.
Keywords: Budget deficit; current expenditures; capital expenditures; Western Balkans
Gordan Janković
Abstract: This paper examines the impact of public expenditure structure on the budget deficit in Western Balkan countries over the period 2008– 2023. Particular attention is given to the differentiated effects of current and capital expenditures, which are considered key drivers of fiscal (im)balance in the region. Using panel regression analysis, a comparative evaluation of three models—Pooled OLS, REM, and FEM—was conducted. Based on the results of the Breusch-Pagan LM and Hausman tests, the random effects model (REM) was identified as the most appropriate. The findings indicate that current expenditures have a negative and statistically significant effect on the budget deficit, while capital expenditures do not demonstrate a significant association. These results highlight the need to rationalize current spending and shift toward investment-oriented expenditures as a mechanism for achieving long-term fiscal sustainability.
Keywords: Budget deficit; current expenditures; capital expenditures; Western Balkans
