IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/63946.html
   My bibliography  Save this paper

Fiscal discretion, growth and output volatility in new EU member countries

Author

Listed:
  • Stanova, Nadja

Abstract

This paper analyses the link between discretionary fiscal policy and output growth in ten CEE countries. Three aspects are considered: cyclical pattern in the fiscal discretion, contributions to GDP growth, and the link between policy aggressiveness and output volatility. Fiscal discretion is estimated from quarterly data over 2000q1 to 2014q1 using a SVAR model in GDP, net taxes and spending. Decomposition of the GDP suggests that fiscal discretion induced rather small contributions to economic growth. Correlation between fiscal policy aggressiveness and output volatility is weak to moderate positive, notwithstanding whether spending or balance is used as the underlying indicator. The cyclical pattern has identified a mix of pro- and counter-cyclical episodes in the years before the crisis, implying that governments might not have consistently used the good times to create buffers. Overall, this evidence supports the view that policy makers in the CEE countries should mainly rely on rule-based fiscal policy rather than (aggressive) fiscal discretion.

Suggested Citation

  • Stanova, Nadja, 2015. "Fiscal discretion, growth and output volatility in new EU member countries," MPRA Paper 63946, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:63946
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/63946/1/MPRA_paper_63946.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Jernej Mencinger Aleksander Aristovnik, 2014. "Fiscal Policy Stance Reaction to the Financial/Economic Crisis in the EMU: The Case of Slovenia," Zagreb International Review of Economics and Business, Faculty of Economics and Business, University of Zagreb, vol. 17(Special C), pages 17-30, December.
    2. Dumitru, Ionut & Stanca, Razvan, 2010. "Fiscal discipline and economic growth – the case of Romania," MPRA Paper 27300, University Library of Munich, Germany.
    3. António Afonso & Luca Agnello & Davide Furceri, 2010. "Fiscal policy responsiveness, persistence, and discretion," Public Choice, Springer, vol. 145(3), pages 503-530, December.
    4. Caroline Klein & Robert Price & Andreas Wörgötter, 2013. "Improving the Fiscal Framework to Enhance Growth in an Era of Fiscal Consolidation in Slovakia," OECD Economics Department Working Papers 1018, OECD Publishing.
    5. Ilzetzki, Ethan & Mendoza, Enrique G. & Végh, Carlos A., 2013. "How big (small?) are fiscal multipliers?," Journal of Monetary Economics, Elsevier, vol. 60(2), pages 239-254.
    6. Antonio Fatás & Ilian Mihov, 2003. "The Case for Restricting Fiscal Policy Discretion," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(4), pages 1419-1447.
    7. Jesús Crespo Cuaresma & Markus Eller & Aaron Mehrotra, 2011. "The Economic Transmission of Fiscal Policy Shocks from Western to Eastern Europe," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 44-68.
    8. Staehr, Karsten, 2008. "Fiscal policies and business cycles in an enlarged euro area," Economic Systems, Elsevier, vol. 32(1), pages 46-69, March.
    9. António Afonso & João Tovar Jalles, 2013. "Do fiscal rules matter for growth?," Applied Economics Letters, Taylor & Francis Journals, vol. 20(1), pages 34-40, January.
    10. Altar, Moisa & Necula, Ciprian & Bobeica, Gabriel, 2010. "Estimating The Cyclically Adjusted Budget Balance For The Romanian Economy. A Robust Approach," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 79-99, July.
    11. Zsolt Darvas, 2010. "The Impact of the Crisis on Budget Policy in Central and Eastern Europe," OECD Journal on Budgeting, OECD Publishing, vol. 10(1), pages 1-42.
    12. Afonso, Antonio & Claeys, Peter, 2008. "The dynamic behaviour of budget components and output," Economic Modelling, Elsevier, vol. 25(1), pages 93-117, January.
    13. John Lewis, 2013. "Fiscal policy in Central and Eastern Europe with real time data: cyclicality, inertia and the role of EU accession," Applied Economics, Taylor & Francis Journals, vol. 45(23), pages 3347-3359, August.
    14. Maria Marcanova & Ludovit Odor, 2014. "The "True" Deficit," Working Papers Working Paper No. 3/2014, Council for Budget Responsibility.
    15. Gilles Mourre & George-Marian Isbasoiu & Dario Paternoster & Matteo Salto, 2013. "The cyclically-adjusted budget balance used in the EU fiscal framework: an update," European Economy - Economic Papers 2008 - 2015 478, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    16. Rajmund Mirdala, 2013. "Lessons Learned from Tax vs. Expenditure Based Fiscal Consolidation in the European Transition Economies," William Davidson Institute Working Papers Series wp1058, William Davidson Institute at the University of Michigan.
    17. Nathalie Girouard & Christophe André, 2005. "Measuring Cyclically-adjusted Budget Balances for OECD Countries," OECD Economics Department Working Papers 434, OECD Publishing.
    18. Mirdala, Rajmund, 2013. "Lessons Learned from Tax versus Expenditure Based Fiscal Consolidation in the European Transition Economies," MPRA Paper 46792, University Library of Munich, Germany.
    19. Zsolt Darvas & Valentina Kostyleva, 2011. "Fiscal and Monetary Institutions in Central, Eastern and South-Eastern European Countries," OECD Journal on Budgeting, OECD Publishing, vol. 11(1), pages 147-185.
    20. Mr. Alejandro D Guerson, 2013. "The Composition of Fiscal Consolidation Matters: Policy Simulations for Hungary," IMF Working Papers 2013/207, International Monetary Fund.
    21. H. Badinger, 2009. "Fiscal rules, discretionary fiscal policy and macroeconomic stability: an empirical assessment for OECD countries," Applied Economics, Taylor & Francis Journals, vol. 41(7), pages 829-847.
    22. Francesca Barbiero & Zsolt Darvas, 2014. "In sickness and in health- protecting and supporting public investment in Europe," Policy Contributions 812, Bruegel.
    23. Robert Ambrisko & Vitezslav Augusta & Dana Hajkova & Petr Kral & Pavla Netusilova & Milan Rikovsky & Pavel Soukup, 2012. "Fiscal Discretion in the Czech Republic in 2001-2011: Has It Been Stabilizing?," Research and Policy Notes 2012/01, Czech National Bank.
    24. Olivier Blanchard & Roberto Perotti, 2002. "An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(4), pages 1329-1368.
    25. Markus Eller, 2009. "Fiscal Position and Size of Automatic Stabilizers in the CESEE EU Member States – Implications for Discretionary Measures," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 78-84.
    26. Rilind Kabashi, 2016. "The cyclical character of fiscal policy in transition countries," Working Papers 2016-03, National Bank of the Republic of North Macedonia.
    27. Caldara, Dario & Kamps, Christophe, 2008. "What are the effects of fiscal policy shocks? A VAR-based comparative analysis," Working Paper Series 877, European Central Bank.
    28. Andrew Hughes Hallett & Rasmus Kattai & John Lewis, 2012. "How Reliable Are Cyclically Adjusted Budget Balances In Real Time?," Contemporary Economic Policy, Western Economic Association International, vol. 30(1), pages 75-92, January.
    29. repec:zbw:bofitp:2011_012 is not listed on IDEAS
    30. 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.
    31. Karsten Staehr, 2010. "The global financial crisis and public finances in the New EU Countries from Central and Eastern Europe," Bank of Estonia Working Papers wp2010-02, Bank of Estonia, revised 04 Feb 2010.
    32. Rilind Kabashi, 2014. "The Cyclical Character of Fiscal Policy in Transition Countries," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 57-73.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Arsic, Milojko & Nojkovic, Aleksandra & Randjelovic, Sasa, 2017. "Determinants of discretionary fiscal policy in Central and Eastern Europe," Economic Systems, Elsevier, vol. 41(3), pages 367-378.
    2. Stanova, Nadja, 2015. "Effects of fiscal shocks in new EU members estimated from a SVARX model with debt feedback," MPRA Paper 63148, University Library of Munich, Germany.
    3. Voinescu Ioan-Vlad, 2018. "Fiscal multipliers in Romania," The Review of Finance and Banking, Academia de Studii Economice din Bucuresti, Romania / Facultatea de Finante, Asigurari, Banci si Burse de Valori / Catedra de Finante, vol. 10(1), pages 026-046, June.
    4. María Lorena Marí Del Cristo & Marta Gómez-Puig, 2013. "Fiscal dynamics in a dollarized, oil-exporting country: Ecuador," Working Papers 13-06, Asociación Española de Economía y Finanzas Internacionales.
    5. Jan Čapek & Jesús Crespo Cuaresma, 2020. "We just estimated twenty million fiscal multipliers," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 82(3), pages 483-502, June.
    6. Goran Petrevski & Jane Bogoev & Dragan Tevdovski, 2016. "Fiscal and monetary policy effects in three South Eastern European economies," Empirical Economics, Springer, vol. 50(2), pages 415-441, March.
    7. Shaig Adigozalov & Vugar Rahimov, 2015. "Institutional Quality, Cyclicality of Macroeconomic Policies and the Effects of Macroeconomic Shocks: Evidence from Transition Economies," IHEID Working Papers 23-2015, Economics Section, The Graduate Institute of International Studies.
    8. Alfred A. Haug & Tomasz Jedrzejowicz & Anna Sznajderska, 2013. "Combining Monetary and Fiscal Policy in an SVAR for a Small Open Economy," Working Papers 1313, University of Otago, Department of Economics, revised Oct 2013.
    9. Oscar Parkyn & Tugrul Vehbi, 2014. "The Effects of Fiscal Policy in New Zealand: Evidence from a VAR Model with Debt Constraints," The Economic Record, The Economic Society of Australia, vol. 90(290), pages 345-364, September.
    10. Haug, Alfred A. & Jędrzejowicz, Tomasz & Sznajderska, Anna, 2019. "Monetary and fiscal policy transmission in Poland," Economic Modelling, Elsevier, vol. 79(C), pages 15-27.
    11. Dragan Tevdovski & Goran Petrevski & Jane Bogoev, 2019. "The effects of macroeconomic policies under fixed exchange rates: A Bayesian VAR analysis," Economic Research-Ekonomska Istraživanja, Taylor & Francis Journals, vol. 32(1), pages 2138-2160, January.
    12. Muhsin Ali & Karim Khan, 2020. "Volatility in Discretionary Public Spending and Economic Growth: A Cross Country Analysis," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 59(1), pages 45-68.
    13. Şen, Hüseyin & Kaya, Ayşe, 2015. "Growth enhancing effect of discretionary fiscal policy shocks: Keynesian, Weak Keynesian or Non-Keynesian?," MPRA Paper 65976, University Library of Munich, Germany, revised 05 Aug 2015.
    14. Fabrizio Coricelli & Riccardo Fiorito, 2013. "Myths and Facts about Fiscal Discretion: A New Measure of Discretionary Expenditure," Documents de travail du Centre d'Economie de la Sorbonne 13033, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    15. Sacchi, Agnese & Salotti, Simone, 2015. "The impact of national fiscal rules on the stabilisation function of fiscal policy," European Journal of Political Economy, Elsevier, vol. 37(C), pages 1-20.
    16. Sabaj, Ernil, 2018. "Cyclical Behavior of Fiscal Policy in the Western Balkans," MPRA Paper 84279, University Library of Munich, Germany.
    17. Gabriel Caldas Montes & Iven Silva Valpassos, 2018. "Discretionary fiscal policy and sovereign risk," Economics Bulletin, AccessEcon, vol. 38(3), pages 1343-1365.
    18. Montes, Gabriel Caldas & Luna, Paulo Henrique, 2018. "Discretionary fiscal policy and disagreement in expectations about fiscal variables empirical evidence from Brazil," Economic Modelling, Elsevier, vol. 73(C), pages 100-116.
    19. Mirdala, Rajmund & Kameník, Martin, 2017. "Effects of Fiscal Policy Shocks in CE3 Countries (TVAR Approach)," MPRA Paper 79918, University Library of Munich, Germany.
    20. Milan Deskar Škrbić & Hrvoje Šimović, 2015. "The size and determinants of fiscal multipliers in Western Balkans: comparing Croatia, Slovenia and Serbia," EFZG Working Papers Series 1510, Faculty of Economics and Business, University of Zagreb.

    More about this item

    Keywords

    discretionary fiscal policy; cyclicality of fiscal policy; fiscal policy aggressiveness; GDP growth; output volatility; SVAR model;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:63946. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.