THE IMPACT OF STOCK-FLOW ADJUSTMENTS AND GOVERNMENT FINANCIAL ASSETS ON FISCAL SUSTAINABILITY IN THE EUROPEAN UNION

This study explores the link between fiscal sustainability and stock-flow adjustments (SFAs) across the 27 EU member states from 1980 to 2024. Using a time-varying coefficient model, it estimates fiscal reaction functions and tests for long-run fiscal equilibrium through cointegration between revenues and expenditures. The results show that SFAs, reflecting discrepancies between deficits and debt changes, are often positively associated with fiscal sustainability indicators. However, they can mask the true fiscal stance, underscoring the need to explicitly account for SFAs in debt sustainability assessments.