Does Green Transition Harm EU Public Debt?

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.