Does Green Transition Harm EU Public Debt?
DOI:
https://doi.org/10.47743/saeb-2026-0009Keywords:
green transitions, public deb, european countries, threshold level.Abstract
This study examines the impact of green transitions on public debt in 27 European Union (EU) countries, employing the dynamic Generalized Method of Moments (GMM) estimation technique. Covering the period from 2019 to 2024, the empirical results confirm that the green transition increases EU public debt levels. In addition, this study analyzes the threshold level of green transition that does not harm public debt using dynamic panel threshold estimation. The panel threshold findings reveal that the green transition has a significantly negative impact on public debt below the threshold and a significantly positive impact above the threshold. This implies that the green transition increases debt after a certain threshold level. Therefore, the results indicate that while a green transition is necessary to meet climate goals, fiscal prudence and private sector participation are needed for sustainable transitions.
References
Adebayo, T. S., Meo, M. S., & Özkan, O. (2024). Scrutinizing the impact of energy transition on GHG emissions in G7 countries via a novel green quality of energy mix index. Renewable Energy, 226(1), 120384. http://dx.doi.org/10.1016/j.renene.2024.120384
Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. The Review of Economic Studies, 58(2), 277–297. http://dx.doi.org/10.2307/2297968
Arellano, M., & Bover, O. (1995). Another look at the instrumental variable estimation of error-components models. Journal of Econometrics, 68(1), 29–51. http://dx.doi.org/10.1016/0304-4076(94)01642-D
Asiama, J., Akosah, N., & Owusu-Afriyie, E. (2014). An assessment of fiscal sustainability in Ghana (WP/BOG-2014/09). Retrieved from
Aspromourgos, T. (2018). Keynes, public debt, and the complex of interest rates. Journal of the History of Economic Thought, 40(4), 493–512. http://dx.doi.org/10.1017/S1053837217000578
Barua, S. (2022). Green growth and energy transition: An assessment of selected emerging economies. In M. Shahbaz, A. K. Tiwari, & A. Sinha (Eds.), Energy-Growth Nexus in an Era of Globalization (pp. 323–352): Elsevier. http://dx.doi.org/10.1016/B978-0-12-824440-1.00003-5
Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87(1), 115–143. http://dx.doi.org/10.1016/S0304-4076(98)00009-8
Broner, F., Erce, A., Martin, A., & Ventura, J. (2014). Sovereign debt markets in turbulent times: Creditor discrimination and crowding-out effects. Journal of Monetary Economics, 61, 114–142. http://dx.doi.org/10.1016/j.jmoneco.2013.11.009
Brown-Collier, E. K., & Collier, B. E. (1995). What Keynes really said about deficit spending. Journal of Post Keynesian Economics, 17(3), 341–355. http://dx.doi.org/10.1080/01603477.1995.11490034
Chenery, H. B., & Strout, A. M. (1966). Foreign Assistance and Economic Development. The American Economic Review, 56(September), 679–732.
Claeys, G., McCaffrey, C., & Welslau, L. (2023). The rising cost of European Union borrowing and what to do about it (12/2023). Retrieved from
Drazen, A. (2000). Political economy in macroeconomics: Princeton University Press. http://dx.doi.org/10.1515/9780691188003
Duwe, M., Graichen, J., & Böttcher, H. (2023). Can current EU climate policy reliably achieve climate neutrality by 2050. Retrieved from
Elmendorf, D. W., & Mankiw, N. G. (1999). Government debt. In J. B. Taylor & M. Woodford (Eds.), Handbook of Macroeconomics (Vol. 1, pp. 1615–1669). Amsterdam: Elsevier.
European Alternative Fuels Observatory. (2025). Alternative Fuels: €422 Million of EU Funding to Boost Zero-Emission Mobility. Retrieved from https://alternative-fuels-observatory.ec.europa.eu/general-information/news/alternative-fuels-eu422-million-eu-funding-boost-zero-emission-mobility
Eurostat. (2024). Government finance statistics. Retrieved from https://ec.europa.eu/eurostat/web/products-euro-indicators/w/2-22102024-bp
Frimpong, J. M., & Oteng-Abayie, E. F. (2006). The impact of external debt on economic growth in Ghana: A cointegration analysis. Journal of Science and Technology (Ghana), 26(3), 122–131.
Global Green Growth Institute. (2025). Green growth index: Publications. Retrieved from https://greengrowthindex.gggi.org/publications-2/#statistical-tables
Imbeau, L. M. (2004). Public deficits and surpluses in federated states: A review of the public choice empirical literature. 22(3), 123–145. http://dx.doi.org/10.1332/251569204X15668904587205
Kirui, E. (2017). Macroeconomic determinants of public debt accumulation in Kenya (196). Retrieved from
Kremer, S., Bick, A., & Nautz, D. (2013). Inflation and growth: New evidence from a dynamic panel threshold analysis. Empirical Economics, 44(2), 861–878. http://dx.doi.org/10.1007/s00181-012-0553-9
Mammetti, V., Zenios, S. A., & Morelli, G. (2024). Are sovereign debts sustainable under energy transition? (4911003). Retrieved from
Meyer-Ohlendorf, N., Kocher, D., Gores, S., & Graichen, J. (2023). EU 2040 Climate Target and Framework: The Role of Carbon Removals. Retrieved from Berlin: https://www.ecologic.eu/19509
Mupunga, N., & Roux, P. L. (2015). Stochastic simulation analysis of sustainable public debt in Zimbabwe. Journal of Economics and International Finance, 7(5), 98–111. http://dx.doi.org/10.5897/JEIF2014.0627
Musah, I. (2023). An empirical investigation of macroeconomic determinants of public debt in Ghana. Cogent Economics & Finance, 11(2), 2285625. http://dx.doi.org/10.1080/23322039.2023.2285625
Ncanywa, T., Masoga, M. M., & Nsiah, C. (2018). Can public debt stimulate public investment and economic growth in South Africa? Cogent Economics & Finance, 6(1), 1516483. http://dx.doi.org/10.1080/23322039.2018.1516483
Obeng, S. K., & Sakyi, D. (2017). Explaining the growth of government spending in Ghana. Journal of Developing Areas, 51(1), 103–128. http://dx.doi.org/10.1353/jda.2017.0006
Omrane Belguith, S., & Omrane, H. (2017). Macroeconomic determinants of public debt growth: A case study for Tunisia. Theoretical & Applied Economics, 24(4), 161–168.
Ouhibi, S., Zouidi, N., & Hammami, S. (2017). The Nexus between Foreign Direct Investment, Economic Growth and Public Debt in the Southern Mediterranean Countries: Evidence from Dynamic Simultaneous-Equation Models. Journal of Economics and Economic Education Research, 18(1), 1–14.
Owusu‐Nantwi, V., & Erickson, C. (2016). Public debt and economic growth in Ghana. African Development Review, 28(1), 116–126. http://dx.doi.org/10.1111/1467-8268.12174
Salsman, R. M. (2017). The political economy of public debt: Three centuries of theory and evidence: Edward Elgar Publishing. http://dx.doi.org/10.4337/9781785363382
Shah, W. U. H., Zhang, X., Yasmeen, R., & Padda, I. U. H. (2023). Green transition and economic growth in G20 countries: Evidence from disaggregated energy sources. Environmental Science and Pollution Research International, 30(40), 92206–92223. http://dx.doi.org/10.1007/s11356-023-28781-6
Speck, S., Paleari, S., Tagliapietra, S., & Zoboli, R. (2023). Investments in the sustainability transition: leveraging green industrial policy against emerging constraints. Retrieved from
Swamy, V. (2015). Government debt and its macroeconomic determinants–an empirical investigation. SSRN Electronic Journal, 2601875. http://dx.doi.org/10.2139/ssrn.2601875
Swaray, R. B. (2005). Primary commodity dependence and debt problem in less developed countries. Applied Econometrics and International Development, 5(4), 131–142.
Taghizadeh-Hesary, F., & Rasoulinezhad, E. (2025). Impact of renewable energy expansion on government debt in developing countries. Energy Strategy Reviews, 58, 101684. http://dx.doi.org/10.1016/j.esr.2025.101684
Wei, Z., Iqbal, A., Jahangir, S., Ali, M. S. E., & Hussain, M. (2025). Financing the green transition: How green finance, green innovation, green growth, and environmental taxes can drive carbon neutrality. Environment, Development and Sustainability, 1–33. http://dx.doi.org/DOI:10.1007/s10668-024-05933-3
Witt, U. (1997). Self-organisation and economics—What is new? Structural Change and Economic Dynamics, 8(4), 489–507. http://dx.doi.org/10.1016/S0954-349X(97)00022-2
World Economic Forum. (2024). A green transition is urgently needed. Here's how we can fuel it. Retrieved from https://www.weforum.org/stories/2024/03/accelerate-towards-green-transition-embrace-motivation/
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2025 Yogeeswari Subramaniam, Muzafar Shah Habibullah , Manuel A. Zambrano-Monserrate
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
All accepted papers are published on an Open Access basis.
The Open Access License is based on the Creative Commons license.
The non-commercial use of the article will be governed by the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License as currently displayed on https://creativecommons.org/licenses/by-nc-nd/4.0
Under the Creative Commons Attribution-NonCommercial-NoDerivatives license, the author(s) and users are free to share (copy, distribute and transmit the contribution) under the following conditions:
1. they must attribute the contribution in the manner specified by the author or licensor,
2. they may not use this contribution for commercial purposes,
3. they may not alter, transform, or build upon this work.
This work is licenced under a 
