Determinants of Stock-Flow Adjustment in European Union Countries

Abstract

Purpose – The stock-flow adjustment variable is rarely discussed among the variables considered in the assessment of the sustainability of public finances. First of all, it is an expression of the extra-budgetary financial operations that cause a change in the size of the public debt. The purpose of this article is to evaluate the impact of fiscal variables, such as the fiscal balance and government debt, on the size of the stock-flow adjustment. Research method – The article uses statistical analysis and panel data modelling. The study covers the period from 2002 to 2022. Eurostat data for 27 European Union countries were used. Results – The study found a statistically significant relationship between the stock-flow adjustment and three variables. The size is influenced by public debt, budget deficit and GDP dynamics. The variables indicate the effect of economic improvement on reducing the size of the stock-flow adjustment. On the other hand, an increase in public debt and an improvement in the budget balance contribute to an increase in the size of SFA. Originality / value / implications / recommendations – In general, the literature concerns the components of the stock-flow adjustment and the causes of its formation. It’s mainly concerned with the nature of the transactions that cause the rise or fall of public debt. Particular attention is paid to creative accounting. In contrast, the study presented in this article allowed us to demonstrate the relationship between the size of the public debt, the budget balance and the dynamics of GDP with the size of the stock-flow adjustment.