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Fiscal Indulgence in Central Europe

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Author Info

  • George Kopits
  • Helge Berger
  • István P. Székely

Abstract

In recent years, fiscal performance in Central Europe has steadily deteriorated, in contrast to the improvement in the Baltics. This paper explores the determinants of such differences among countries slated for EU accession. Regression estimates suggest that economic and institutional fundamentals do not provide a full explanation. An alternative explanation lies in the political economy of the accession process, and a game-theoretic model illustrates why a country with a stronger bargaining position might have an incentive to deviate from convergence to the Maastricht criteria. The model generates alternative fiscal policy regimes-allowing for regime shifts-depending on country characteristics and EU policies.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 04/62.

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Length: 23
Date of creation: 01 Apr 2004
Date of revision:
Handle: RePEc:imf:imfwpa:04/62

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Keywords: European Union; Fiscal reforms; Budget deficits; Economic models; fiscal policy; fiscal performance; fiscal stance; loose ? fiscal policy; fiscal behavior; fiscal balance; tight ? fiscal policy; fiscal discipline; fiscal misbehavior; fiscal position; fiscal transparency; fiscal policies; fiscal institutions; fiscal deficit; fiscal imbalance; fiscal expansion; fiscal strategy; analytical framework; public finances; fiscal balances; loose fiscal policy; fiscal policy decisions; fiscal positions; fiscal outcomes; fiscal strategies; fiscal consolidation; fiscal reference; public debt; fiscal centralization; fiscal sustainability; fiscal decentralization; fiscal decision; fiscal concern; expansionary fiscal policy; data sources; tax structure; fiscal affairs departments; fiscal imbalances; fiscal affairs; expansionary fiscal; financial institutions; capital expenditure; fiscal policy decision; fiscal adjustment; excessive deficit procedure; fiscal deficits; national budget; interest expenditure; prudent fiscal policy; fiscal risk; fiscal choice; fiscal framework; fiscal costs; excessive deficits; fiscal impulse; budgetary implications; fiscal illusion; public finance; budget constraint; expenditure policy; fiscal course; information asymmetry;

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References

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  1. Guillermo A. Calvo & Frederic S. Mishkin, 2003. "The Mirage of Exchange Rate Regimes for Emerging Market Countries," Journal of Economic Perspectives, American Economic Association, vol. 17(4), pages 99-118, Fall.
  2. Drazen, Allan & Masson, Paul R, 1994. "Credibility of Policies versus Credibility of Policymakers," The Quarterly Journal of Economics, MIT Press, vol. 109(3), pages 735-54, August.
  3. Nordhaus, William D, 1975. "The Political Business Cycle," Review of Economic Studies, Wiley Blackwell, vol. 42(2), pages 169-90, April.
  4. Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-25, August.
  5. Yan Sun, 2003. "Do Fixed Exchange Rates Induce More Fiscal Discipline?," IMF Working Papers 03/78, International Monetary Fund.
  6. William Allan & Taryn Parry, 2003. "Fiscal Transparency in EU Accession Countries," IMF Working Papers 03/163, International Monetary Fund.
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Citations

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Cited by:
  1. Rupa Duttagupta & Guillermo Tolosa, 2006. "Fiscal Discipline and Exchange Rate Regimes," IMF Working Papers 06/119, International Monetary Fund.
  2. Rafal Benecki & Jens Hölscher & Mariusz Jarmuzek, 2006. "Fiscal Transparency and Policy Rules in Poland," CASE Network Studies and Analyses 0327, CASE-Center for Social and Economic Research.
  3. Karsten Staehr, 2007. "Fiscal policies and business cycles in an enlarged euro area," Bank of Estonia Working Papers 2007-03, Bank of Estonia, revised 08 Mar 2007.
  4. Kutan, Ali M. & Yigit, Taner M., 2005. "Real and nominal stochastic convergence: Are the new EU members ready to join the Euro zone?," Journal of Comparative Economics, Elsevier, vol. 33(2), pages 387-400, June.
  5. Anthony Annett, 2006. "Enforcement and the Stability and Growth Pact," IMF Working Papers 06/116, International Monetary Fund.
  6. Kocenda, Evzen & Kutan, Ali M. & Yigit, Taner M., 2008. "Fiscal convergence in the European Union," The North American Journal of Economics and Finance, Elsevier, vol. 19(3), pages 319-330, December.
  7. Mikek, Peter, 2008. "Alternative monetary policies and fiscal regime in new EU members," Economic Systems, Elsevier, vol. 32(4), pages 335-353, December.
  8. 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.

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