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Fiscal Policy in New EU Member States – Go East, Prudent Man!

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  • Ondrej Schneider
  • Jan Zápal

Abstract

The European Union (EU) accepted ten new member states (NMS) in 2004. These countries, mostly former socialist countries, have had to adjust their economic policies to the EU’s standards. Perhaps most difficult has proven to be fiscal policy whereby NMS must comply with the Stability and Growth Pact (SGP) rules. Indeed, six out of the ten NMS have breached the SGP limits and were put in Excessive Deficit Procedure (EDP). While the SGP is being modified, fiscal policy is set to remain on the agenda for all NMS in years to come. In this paper, we analyze fiscal policy in the NMS, focusing primarily on the time period that immediately preceded their EU accession. We analyse the structure and scale of these countries’ fiscal policy and identify main trends in revenues and expenditures of their public budgets. We then explore dynamics of fiscal policy in the new member states and isolate main factors of the dynamics. Namely, we show how much of the consolidations was due to the fiscal authorities’ effort and how much was caused by external factors. We also show that most NMS governments have run a rather inconsistent fiscal policy and have not consolidated their budgets appropriately by postponing politically difficult consolidation measures. However, we also identify a group of countries characterised by strong reform efforts and responsible fiscal policy-making, supported usually by strong economic growth. In this context, room is given to economic, as well as political economy factors.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1486.

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Date of creation: 2005
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Handle: RePEc:ces:ceswps:_1486

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Keywords: fiscal policy; new member states; consolidations; Stability and Growth Pact; Excessive Deficit Procedure; growth accounting; probit analysis;

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Citations

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Cited by:
  1. Ondřej Schneider, 2007. "The EU Budget Dispute - A Blessing in Disguise?," Working Papers IES, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies 2007/14, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Apr 2007.
  2. Jan Zápal & Ondrej Schneider, 2006. "What are their Words Worth? Political Plans and Economic Pains of Fiscal Consolidations in New EU Member States," CESifo Working Paper Series 1655, CESifo Group Munich.
  3. Massimiliano Castellani & Luca Fanelli & Marco Savioli, 2013. "Government Fiscal Efforts vs. Labour Union Strikes: It Takes Two to Tango," Working Paper Series, The Rimini Centre for Economic Analysis 33_13, The Rimini Centre for Economic Analysis, revised Jan 2014.
  4. Philipp Paulus, 2006. "The final blow to the Stability Pact? EMU enlargement and government debt," Otto-Wolff-Institut Discussion Paper Series, Otto-Wolff-Institut für Wirtschaftsordnung, Köln, Deutschland 03/2006, Otto-Wolff-Institut für Wirtschaftsordnung, Köln, Deutschland.
  5. Ileana Tache & Gheorghita Dinca & Melinda Keul, 2008. "Fiscal policy making in the new EU post-communist countries," EKONOMIAZ, Gobierno Vasco / Eusko Jaurlaritza / Basque Government, Gobierno Vasco / Eusko Jaurlaritza / Basque Government, vol. 69(03), pages 80-107.
  6. Mihaela Bebeşelea & Paula Cornelia Mitran & Octavian Neguriţă, 2012. "Econometric model Concerning The Impact Of The Fiscal Policy Upon The Economic Development. The Case Of The Countries From Central And Eastern Europe, Members Of The European Union," Journal of Knowledge Management, Economics and Information Technology, ScientificPapers.org, ScientificPapers.org, vol. 2(3), pages 12, June.

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