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Public Investment and Fiscal Performance in New EU Member States

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  • Jan Hanousek
  • Evzen Kocenda

    ()

Abstract

In this paper we analyze the dynamics of public investment and public finance in new members of the European Union, and also how these sectors were affected by changes in economic freedom and corruption. When we assess the role of regulation and corruption on public investment, we find that improvements in economic freedom tend to be associated with decreases in public investment, while reductions in corruption produce effects going in both directions. Similarly, we show that increases in public investment are often linked with decreases as well as increases in corruption. In terms of public finance we detect mostly improvement in debt when there is less economic regulation, while results for a deficit are less conclusive. On the other hand, improvements in the corruption environment are mostly associated with decreases in the deficit as well as debt. As a general rule that follows from our results, steps aimed at reducing corruption and the degree of economic regulation should lead towards improvements in the fiscal position in most of the new EU countries.

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Bibliographic Info

Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number wp1006.

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Length: pages
Date of creation: 01 Dec 2010
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Handle: RePEc:wdi:papers:2010-1006

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Keywords: public finance; public investment; economic freedom; corruption; EU convergence and integration; macroeconomic policy; fiscal reforms; new EU members;

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Cited by:
  1. Brixiova, Zuzana & Égert, Balázs, 2012. "Labour Market Reforms and Outcomes in Estonia," IZA Discussion Papers 6336, Institute for the Study of Labor (IZA).
  2. 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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