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Hooverism, Hyperstabilisation or Halfway-House? Describing Fiscal Policy in Central and Eastern European EU Members

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  • Rasmus Kattai

    ()

  • John Lewis

    ()

Abstract

This paper develops a simple framework for describing fiscal policy where policymakers attempt to minimise deviations in output and budget balance from target values. Optimal policy is given by minimising a quadratic loss function subject to a linear structure of the economy. This policy can be viewed as weighted average of two polar cases - the case where the budget deficit adjusts to eliminate any deviations from potential output (hyperstabilisation), and the case where taxes and spending are determined exclusively by some budgetary goal (hooverism). We find some evidence of stabilisation for Poland, Latvia and Estonia. There is no evidence for the Czech Republic, Lithuania, Slovakia and Slovenia, suggesting that fiscal policy was being used for other objectives. The best fit is for Estonia, suggesting that a strict fiscal policy environment may not be incompatible with stabilising fiscal policy.

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Bibliographic Info

Paper provided by Bank of Estonia in its series Bank of Estonia Working Papers with number 2005-05.

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Length: 16 pages
Date of creation: 10 Oct 2005
Date of revision: 10 Oct 2005
Publication status: published
Handle: RePEc:eea:boewps:wp2005-05

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Keywords: Fiscal Policy; Fiscal Policy Rules; New EU Member States;

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References

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Citations

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Cited by:
  1. Staehr, Karsten, 2008. "Fiscal policies and business cycles in an enlarged euro area," Economic Systems, Elsevier, vol. 32(1), pages 46-69, March.
  2. John Lewis, 2007. "Fiscal policy in central and Eastern Europe: what happened in the run-up to EU accession?," International Economics and Economic Policy, Springer, vol. 4(1), pages 15-31, April.
  3. Ayala, Astrid & Blazsek, Szabolcs, 2013. "Structural breaks in public finances in Central and Eastern European countries," Economic Systems, Elsevier, vol. 37(1), pages 45-60.

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