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

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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 analyse fiscal policy in the NMS, focusing primarily on 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 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 Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies in its series Working Papers IES with number 76.

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Length: 29 pages
Date of creation: 2005
Date of revision: 2005
Handle: RePEc:fau:wpaper:wp076

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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. Ileana Tache & Gheorghita Dinca & Melinda Keul, 2008. "Fiscal policy making in the new EU post-communist countries," EKONOMIAZ, Gobierno Vasco / Eusko Jaurlaritza / Basque Government, vol. 69(03), pages 80-107.
  2. 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, vol. 2(3), pages 12, June.
  3. Philipp Paulus, 2006. "The final blow to the Stability Pact? EMU enlargement and government debt," Otto-Wolff-Institut Discussion Paper Series 03/2006, Otto-Wolff-Institut für Wirtschaftsordnung, Köln, Deutschland.
  4. Ondrej Schneider, 2007. "The EU Budget Dispute – A Blessing in Disguise?," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 57(7-8), pages 304-323, September.
  5. 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.
  6. Massimiliano Castellani & Luca Fanelli & Marco Savioli, 2013. "Government Fiscal Efforts vs. Labour Union Strikes: It Takes Two to Tango," Working Paper Series 33_13, The Rimini Centre for Economic Analysis, revised Jan 2014.

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