This study investigates the nonlinear relationship between public finance dynamics and economic growth in Serbia using a Threshold Autoregressive Distributed Lag (ARDL) model. Public finance variables, including government revenue, government expenditure, public debt, inflation, and unemployment, are analyzed to assess their impact on economic performance from 2008 to 2023. A key contribution of this research is the identification of a critical debt-to-GDP threshold of 55%, beyond which fiscal policy effectiveness declines, and economic growth weakens. The results indicate that under low-debt conditions (≤55% debt-to-GDP), government revenue and government expenditure positively influence GDP growth, whereas in high-debt periods (>55%), these effects diminish significantly. Moreover, the negative impact of debt, inflation, and unemployment on growth intensifies when debt surpasses the threshold. The study provides empirical evidence that exceeding this critical debt level triggers economic slowdowns, offering valuable insights for policymakers aiming to balance fiscal sustainability and economic growth. The findings suggest that maintaining debt levels below 55% of GDP is crucial for optimizing fiscal policy efficiency and ensuring stable economic expansion in Serbia and similar emerging economies.

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