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Effects Of Fiscal Policy Shocks In The European Transition Economies

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  • Rajmund MIRDALA

    ()
    (Faculty of Economics, Technical University of Košice, Slovakia)

Abstract

EU member countries are currently exposed to negative implications of the economic and financial crisis. In connection with this problem arises the question of an anti-cyclic role of an economic policy or more precisely the (regulatory) role of the government in the economy that seems to be the centre of discussions in the academic as well as economic policy sphere. The problem of a permanent deficiency of the general government budget stresses many "old" as well as "new" EU member countries. It significantly reduces an expansionary potential of the national fiscal policies. Because the economic crisis seems to be a very difficult problem due to its specific and complex features, it is necessary for the EU member countries to coordinate the process of the national stimulatory actions approving that would help the countries to avoid an undesired reallocation of resources outside the EU single market as well as the negative common competitive effects. In the paper we analyze the effects of fiscal policy shocks in the Czech republic, Hungary, Poland, the Slovak republic, Bulgaria and Romania in the period 2000-2008. Our objective is to estimate the effects of discretionary changes in fiscal policy (associated with an increase in government expenditures) as well as the role of automatic stabilizers (associated with an increase in tax revenues). To meet the objective we estimate vector autoregression (VAR) model. To check the robustness of the results we implement an identification scheme based on two approaches. The first, recursive approach, is based on the Cholesky decomposition of innovations that allows us to identify structural shocks hitting the model. The second approach, structural VAR approach, is based on applying long-run restrictions to the reduced-form VAR model. From both identified true models we compute impulse-response functions to estimate the responses of real output, inflation and short term interest rates to the government expenditure and tax revenue shocks.

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Bibliographic Info

Article provided by ASERS Publishing in its journal Journal of Applied Research in Finance.

Volume (Year): I (2009)
Issue (Month): 2 (December)
Pages: 141-157

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Handle: RePEc:srs:jarf12:5:v:1:y:2009:i:2:p:141-157

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Web page: http://www.cesmaa.eu/journals/jarf/index.php

Related research

Keywords: fiscal policy; government expenditure; tax revenue; unrestricted VAR; Cholesky decomposition; SVAR; structural shocks; impulse-response function;

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References

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  1. Andrew Mountford & Harald Uhlig, 2009. "What are the effects of fiscal policy shocks?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 24(6), pages 960-992.
  2. Craig Burnside & Martin Eichenbaum & Jonas Fisher, 2003. "Fiscal Shocks and Their Consequences," NBER Working Papers 9772, National Bureau of Economic Research, Inc.
  3. Olivier Blanchard & Roberto Perotti, 1999. "An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output," NBER Working Papers 7269, National Bureau of Economic Research, Inc.
  4. Giuliodori, Massimo & Beetsma, Roel, 2004. "What are the spill-overs from fiscal shocks in Europe? An empirical analysis," Working Paper Series, European Central Bank 0325, European Central Bank.
  5. Christina D. Romer & David H. Romer, 2010. "The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks," American Economic Review, American Economic Association, American Economic Association, vol. 100(3), pages 763-801, June.
  6. Rajmund MIRDALA, 2009. "Shocking Aspects Of Monetary Integration (Svar Approach)," Journal of Applied Research in Finance Bi-Annually, ASERS Publishing, ASERS Publishing, vol. 0(1), pages 52-62, June.
  7. Srđan Redžepagić & Matthieu Llorca, 2007. "Does Politics Matter in the Conduct of Fiscal Policy? Political Determinants of the Fiscal Sustainability: Evidence from Seven Individual Central and Eastern European Countries (CEEC)," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 54(4), pages 489-500, December.
  8. Mihai ANTONESCU & Simona MANEA & Ligia ANTONESCU, 2008. "Fiscal Aspects Regarding Taxing The Incomes Of Non�Residents In Romania," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 3(4(6)_Wint).
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Cited by:
  1. Milan Deskar-Škrbić & Hrvoje Šimović & Tomislav Ćorić, 2013. "Effects of Fiscal Policy in a Small Open Economy: Evidence of Croatia," EFZG Working Papers Series, Faculty of Economics and Business, University of Zagreb 1302, Faculty of Economics and Business, University of Zagreb.
  2. Mehrotra, Aaron & Crespo Cuaresma, Jesús & Eller, Markus, 2011. "The Economic transmission of fiscal policy shocks from Western to Eastern Europe," BOFIT Discussion Papers, Bank of Finland, Institute for Economies in Transition 12/2011, Bank of Finland, Institute for Economies in Transition.
  3. Hrvoje Simovic & Milan Deskar-Skrbic, 2013. "Dynamic effects of fiscal policy and fiscal multipliers in Croatia," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics, University of Rijeka, Faculty of Economics, vol. 31(1), pages 55-78.
  4. Borys, Paweł & Ciżkowicz, Piotr & Rzońca, Andrzej, 2013. "Panel data evidence on effects of fiscal impulses in the EU New Member States," MPRA Paper 48243, University Library of Munich, Germany.
  5. Mirdala, Rajmund, 2013. "Lessons Learned from Tax versus Expenditure Based Fiscal Consolidation in the European Transition Economies," MPRA Paper 46792, University Library of Munich, Germany.
  6. Serbanoiu, Georgian Valentin, 2012. "Transmission of fiscal policy shocks into Romania's economy," MPRA Paper 40947, University Library of Munich, Germany.
  7. Michal Franta, 2012. "Macroeconomic Effects of Fiscal Policy in the Czech Republic: Evidence Based on Various Identification Approaches in a VAR Framework," Working Papers, Czech National Bank, Research Department 2012/13, Czech National Bank, Research Department.

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