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Fiscal Indulgence in Central Europe: Loss of the External Anchor

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Author Info
Helge Berger
George Kopits
István P. Székely

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

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Length: 22 pages
Date of creation: 26 Apr 2004
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Handle: RePEc:imf:imfwpa:04/62

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Related research
Keywords: Fiscal policy ; Europe ; European Union ; European Economic and Monetary Union ; Fiscal reforms ; Budget deficits ; Economic models ;

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This paper has been announced in the following NEP Reports: References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. 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. [Downloadable!] (restricted)
    Other versions:
  2. Nordhaus, William D, 1975. "The Political Business Cycle," Review of Economic Studies, Blackwell Publishing, vol. 42(2), pages 169-90, April. [Downloadable!] (restricted)
  3. William Allan & Taryn Parry, 2003. "Fiscal Transparency in EU Accession Countries: Progress and Future Challenges," IMF Working Papers 03/163, International Monetary Fund. [Downloadable!]
  4. Yan Sun, 2003. "Do Fixed Exchange Rates Induce More Fiscal Discipline?," IMF Working Papers 03/78, International Monetary Fund. [Downloadable!]
  5. 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. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Anthony Annett, 2006. "Enforcement and the Stability and Growth Pact: How Fiscal Policy Did and Did Not Change Under Europe's Fiscal Framework," IMF Working Papers 06/116, International Monetary Fund. [Downloadable!]
  2. J. de Haan & H. Berger & D. Jansen, 2003. "The end of the stability and growth pact?," WO Research Memoranda (discontinued) 748, Netherlands Central Bank, Research Department. [Downloadable!]
    Other versions:
  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. [Downloadable!]
  4. 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. [Downloadable!]
  5. George Kopits, 2007. "Fiscal Responsibility Framework: International Experience and Implications for Hungary," MNB Occasional Papers 2007/62, Magyar Nemzeti Bank (The Central Bank of Hungary). [Downloadable!]
  6. 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. [Downloadable!] (restricted)
  7. Guillermo Tolosa & Rupa Duttagupta, 2006. "Fiscal Discipline and Exchange Rate Regimes: Evidence from the Caribbean," IMF Working Papers 06/119, International Monetary Fund. [Downloadable!]
  8. Karsten Staehr, 2007. "Fiscal Policies and Business Cycles in an Enlarged Euro Area," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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