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Fiscal indulgence in Central Europe: loss of the external anchor?

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  • Berger, Helge
  • Kopits, George
  • Székely, István P.

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 on the path to 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 Free University Berlin, School of Business & Economics in its series Discussion Papers with number 2006/9.

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Date of creation: 2006
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Handle: RePEc:zbw:fubsbe:20069

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Keywords: Fiscal policy; EU economic and monetary union; game-theoretic approach;

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References

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  1. Yan Sun, 2003. "Do Fixed Exchange Rates Induce More Fiscal Discipline?," IMF Working Papers 03/78, International Monetary Fund.
  2. Tornell, Aaron & Velasco, Andres, 1998. "Fiscal discipline and the choice of a nominal anchor in stabilization," Journal of International Economics, Elsevier, vol. 46(1), pages 1-30, October.
  3. 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.
  4. Nordhaus, William D, 1975. "The Political Business Cycle," Review of Economic Studies, Wiley Blackwell, vol. 42(2), pages 169-90, April.
  5. 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.
  6. William Allan & Taryn Parry, 2003. "Fiscal Transparency in EU Accession Countries," IMF Working Papers 03/163, International Monetary Fund.
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Cited by:
  1. Przemysław Pacześ, 2012. "Polityczny cykl koniunkturalny w Europie Środkowo-Wschodniej [ Political Business Cycle in Central and Eastern Europe ]," Prace i Materiały, Instytut Rozwoju Gospodarczego (SGH), vol. 88(1), pages 119-139.
  2. Juan Carlos Cuestas & Karsten Staehr, 2013. "Fiscal shocks and budget balance persistence in the EU countries from Central and Eastern Europe," Applied Economics, Taylor & Francis Journals, vol. 45(22), pages 3211-3219, August.
  3. 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.
  4. Karsten Staehr, 2007. "Fiscal Policies and Business Cycles in an Enlarged Euro Area," CESifo Working Paper Series 1933, CESifo Group Munich.
  5. Kopits, György & Romhányi, Balázs, 2010. "A Költségvetési Tanács indulásának tanulságai
    [Hungarys Fiscal Council: Early lessons]
    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(7), pages 573-590.
  6. Jakob de Haan & Helge Berger & David-Jan Jansen, 2003. "The End of the Stability and Growth Pact?," CESifo Working Paper Series 1093, CESifo Group Munich.
  7. 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.
  8. Tanja A. Börzel & Thomas Risse, 2009. "The Transformative Power of Europe: The European Union and the Diffusion of Ideas," KFG Working Papers p0001, Free University Berlin.
  9. Ringa Raudla, 2010. "Governing budgetary commons: what can we learn from Elinor Ostrom?," European Journal of Law and Economics, Springer, vol. 30(3), pages 201-221, December.
  10. 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).

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