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The Impact of the Crisis on Budget Policy in Central and Eastern Europe

  • Zsolt Darvas

This paper describes the particular impacts of the financial and economic crisis on Central and Eastern European (CEE) countries; studies pro-cyclicality of fiscal policies; discusses the impact of the crisis on fiscal policy; and takes a look at the policy response of various governments. After drawing some lessons for fiscal policy from previous emerging market crises, the paper concludes with some thoughts on the appropriate policy response from a more normative perspective. The key message of the paper is that the crisis should be used as an opportunity to introduce reforms to avoid future pro-cyclical fiscal policies, to increase the quality of budgeting and to increase credibility. These reforms should include fiscal responsibility laws comprising medium-term fiscal frameworks, fiscal rules and independent fiscal councils. When fiscal consolidation is accompanied by fiscal reforms that increase credibility, non-Keynesian effects may offset the contraction caused by the consolidation to some extent. JEL classification: C32, E62, H60 Keywords: Crisis, budget policy, fiscal policy, Central and Eastern Europe, CEE, CESEE

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Article provided by OECD Publishing in its journal OECD Journal on Budgeting.

Volume (Year): 10 (2010)
Issue (Month): 1 ()
Pages: 1-42

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Handle: RePEc:oec:govkaa:5km7s5m3nlvd
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  1. Canova, Fabio, 1993. "Detrending and Business Cycle Facts," CEPR Discussion Papers 782, C.E.P.R. Discussion Papers.
  2. Ricardo J. Caballero & Takeo Hoshi & Anil K. Kashyap, 2008. "Zombie Lending and Depressed Restructuring in Japan," American Economic Review, American Economic Association, vol. 98(5), pages 1943-77, December.
  3. 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, MIT Press, vol. 117(4), pages 1329-1368, November.
  4. Rzonca, Andrzej & Cizkowicz, Piotr, 2005. "Non-Keynesian effects of fiscal contraction in new member states," Working Paper Series 0519, European Central Bank.
  5. Ethan Ilzetzki & Carlos A. Vegh, 2008. "Procyclical Fiscal Policy in Developing Countries: Truth or Fiction?," NBER Working Papers 14191, National Bureau of Economic Research, Inc.
  6. Gabriele Giudice & Alessandro Turrini & Jan in’t Veld, 2007. "Non-Keynesian Fiscal Adjustments? A Close Look at Expansionary Fiscal Consolidations in the EU," Open Economies Review, Springer, vol. 18(5), pages 613-630, November.
  7. Reinhart, Carmen & Kaminsky, Graciela & Vegh, Carlos, 2004. "When it rains, it pours: Procyclical capital flows and macroeconomic policies," MPRA Paper 13883, University Library of Munich, Germany.
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