First- and Second-Generation Fiscal Rules: Fiscal Sustainability and Public Debt Management in the European Union and Türkiye

This study examines the effects of first- and second-generation fiscal rules on fiscal sustainability and public debt management, focusing on European Union countries that implement these rules and Türkiye, which does not have such regulations. It explores the temporal effects of interest rates and the role of fiscal rules in borrowing costs. Last year’s interest rate increase raised borrowing costs, while a two-year lagged interest rate decrease them. A budget surplus lowers borrowing costs, although the impact of public debt remains limited. Inflation increases borrowing costs. First-generation fiscal rules enhance the budget balance, whereas second-generation rules boost fiscal discipline. The findings highlight the vital role of fiscal rules in debt sustainability and budget stability.