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The Cyclical Character of Fiscal Policy in Transition Countries

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  • Rilind Kabashi

    (National Bank of the Republic of Macedonia and Liberta Institute – Skopje)

Abstract

This study investigates the cyclical character of fiscal policy in transition countries in Central, Eastern and Southeastern Europe (CESEE) in the period from 1995 to 2011, using system GMM as the preferred estimation method for the underlying sample and model specification. The study finds discretionary policy in the CESEE EU Member States and in the Western Balkan countries to have been procyclical, thus aggravating economic fluctuations, whereas automatic stabilizers moved overall policy to an acyclical stance. In addition, the analysis indicates considerable differences in the cyclical character of fiscal policy between transition countries and the Western European EU Member States, where both overall fiscal policy and discretionary policy were acyclical. Finally, the study also offers several recommendations for policymakers, particularly in transition countries.

Suggested Citation

  • 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.
    • Handle: RePEc:onb:oenbfi:y:2014:i:1:b:3
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    Cited by:

    1. Alina Daniela Vodă & Gabriela Dobrotă & Loredana Andreea Cristea, 2020. "Procyclical, Countercyclical and Acyclical Fiscal Policies," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(2), pages 1101-1108, December.
    2. Alabi, M. K. & Amirthalingam, K., 2020. "Fiscal Policy and the Business Cycle in the West African Monetary Zone," Working Papers 8, Department of Economics, University of Ilorin.
    3. 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.
    4. Sabaj, Ernil, 2018. "Cyclical Behavior of Fiscal Policy in the Western Balkans," MPRA Paper 84279, University Library of Munich, Germany.
    5. Stanova, Nadja, 2015. "Fiscal discretion, growth and output volatility in new EU member countries," MPRA Paper 63946, University Library of Munich, Germany.
    6. Gheorghița DINCĂ & Marius Sorin DINCĂ & Bardhyl DAUTI & Mirela Camelia BABA & Cătălina POPIONE, 2020. "Cyclicality of Fiscal Policy in the European Union," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 75-96, March.

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    More about this item

    Keywords

    fiscal policy; transition countries; European Union; system GMM;
    All these keywords.

    JEL classification:

    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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