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Why Did Estonia Choose Fiscal Retrenchment after the 2008 Crisis?

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  • Raudla, Ringa
  • Kattel, Rainer

Abstract

The budgetary response of Estonia to the 2008 global financial crisis poses a puzzle. While many other countries increased public expenditure and ran high deficits in 2009, the Estonian government was different: it undertook fiscal retrenchment, combining expenditure cuts and tax increases, despite a large drop in economic output. This article explains why the Estonian government opted for fiscal consolidation during the crisis. The ideological position of the governing parties and their desire the join the euro-zone played an important role in driving fiscal discipline. It also argues that the key to understanding Estonia's fiscal decisions in 2009 is what happened in the 1990s: fiscal policy choices became path-dependent as a result of positive feedback loops from previous periods of fiscal consolidation. Path-dependency was further reinforced by institutional capabilities (or lack thereof) created by initial macroeconomic policy choices.

Suggested Citation

  • Raudla, Ringa & Kattel, Rainer, 2011. "Why Did Estonia Choose Fiscal Retrenchment after the 2008 Crisis?," Journal of Public Policy, Cambridge University Press, vol. 31(2), pages 163-186, August.
    • Handle: RePEc:cup:jnlpup:v:31:y:2011:i:02:p:163-186_00
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    Cited by:

    1. Knobel, Alexander (Кнобель, Александр), 2018. "Assessment of the Benefits, Risks and Costs of the Transition to the Regime of Preferential Trade and Economic Interaction with the People's Republic of China [Оценка Выгод, Рисков И Издержек Перех," Working Papers 061827, Russian Presidential Academy of National Economy and Public Administration.
    2. Neven Valev, 2017. "Fear of floating," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 25(1), pages 77-90, January.
    3. Liis Roosaar & Urmas Varblane & Jaan Masso, 2020. "Productivity Gains From Labour Churning In Economic Crisis: Do Foreign Firms Gain More?," University of Tartu - Faculty of Economics and Business Administration Working Paper Series 125, Faculty of Economics and Business Administration, University of Tartu (Estonia).
    4. Mathias Dolls & Clemens Fuest & Andreas Peichl & Christian Wittneben, 2022. "Fiscal Consolidation and Automatic Stabilization: New Results," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 70(3), pages 420-450, September.
    5. Fabrizio Di Mascio & Alessandro Natalini, 2015. "Fiscal Retrenchment in Southern Europe: Changing patterns of public management in Greece, Italy, Portugal and Spain," Public Management Review, Taylor & Francis Journals, vol. 17(1), pages 129-148, January.
    6. Huseynov, Nijat, 2017. "The Classification of Public Expenditure in Post-Soviet Union States and OECD Member Countries," Public Finance Quarterly, Corvinus University of Budapest, vol. 62(3), pages 380-400.
    7. Raudla Ringa & Cepilovs Aleksandrs & Kattel Rainer & Sutt Linda, 2018. "The European Union as a Trigger of Discursive Change: The Impact of the Structural Deficit Rule in Estonia and Latvia," Central European Journal of Public Policy, Sciendo, vol. 12(2), pages 1-15, December.
    8. Arunas Juska & Charles Woolfson, 2015. "Austerity, labour market segmentation and emigration: the case of Lithuania," Industrial Relations Journal, Wiley Blackwell, vol. 46(3), pages 236-253, May.
    9. Ringa Raudla & Riin Savi, 2015. "The use of performance information in cutback budgeting," Public Money & Management, Taylor & Francis Journals, vol. 35(6), pages 409-416, November.
    10. Egert Juuse & Rainer Kattel, 2014. "Financialisation and the Financial and Economic Crises: The Case of Estonia," FESSUD studies fstudy20, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.

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