The role of fiscal sustainability and institutional credibility in public financial management as a factor of economic growth in Central and Eastern Europe

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Abstract

This study examines the impact of public financial management (PFM) on economic growth in European Union (EU) member states by assessing whether fiscal discipline, effective investment, and institutional quality contribute to higher gross domestic product (GDP) per capita growth. The empirical analysis employs a dynamic panel model estimated through the system generalized method of moments (GMM) for 2015–2024, which addresses endogeneity and unobserved heterogeneity. The results show that a sound budget balance and higher gross capital formation significantly enhance growth, while government consumption exerts a negative effect. Corruption control also supports growth by improving the efficiency of public spending, consistent with earlier evidence on the role of institutions (Mauro, 1995). In line with Barro (1990), the findings confirm that the composition and quality of fiscal policy matter more than its size. The study concludes that strengthening fiscal sustainability and institutional credibility is essential for growth-oriented PFM reform in EU economies.

Keywords: Public Financial Management, Fiscal Sustainability, Institutional Credibility, Economic Growth, System GMM

Authors’ individual contribution: Conceptualization — K.G.B. and F.B.; Methodology — K.G.B. and F.B.; Investigation — K.G.B. and F.B.; Resources — K.G.B. and F.B.; Writing — Original Draft — K.G.B. and F.B.; Writing — Review & Editing — K.G.B. and F.B.; Supervision — K.G.B. and F.B.; Funding Acquisition — K.G.B. and F.B.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: G32, M4, M41, Q56

Received: 03.08.2025
Revised: 24.10.2025; 19.11.2025
Accepted: 08.12.2025
Published online: 10.12.2025

How to cite this paper: Brajshori, K. G., & Beha, F. (2025). The role of fiscal sustainability and institutional credibility in public financial management as a factor of economic growth in Central and Eastern Europe. Corporate Governance and Sustainability Review, 9(4), 161–171. https://doi.org/10.22495/cgsrv9i4p14