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Fiscal policy in Central and Eastern Europe with real time data: cyclicality, inertia and the role of EU accession

  • John Lewis

This article evaluates the cyclicality, inertia and effect of EU accession on fiscal policy in Central and Eastern Europe (CEE) using a real time dataset. Budget balances are found to react in a stabilizing way to economic activity -- every extra percentage point of economic growth is associated with an improvement in the budget balance of 0.3 percentage points of Gross Domestic Product (GDP) -- and there is no evidence of an asymmetric reaction to the cycle. Balances are much less inert than is typically found in Western Europe. However, there is clear evidence of a fiscal loosening in the run-up to EU accession. This began in 1999 in larger central European countries, often identified as ‘front-runners’. The other seven began loosening in 2001, after the Nice Treaty was agreed. For both sets of countries, this loosening cumulatively amounts to some 3% of GDP.

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File URL: http://hdl.handle.net/10.1080/00036846.2012.705428
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Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 45 (2013)
Issue (Month): 23 (August)
Pages: 3347-3359

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Handle: RePEc:taf:applec:v:45:y:2013:i:23:p:3347-3359
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  1. Beetsma, Roel & Giuliodori, Massimo, 2008. "Fiscal Adjustment to Cyclical Developments in the OECD: An Empirical Analysis Based on Real-Time Data," CEPR Discussion Papers 6692, C.E.P.R. Discussion Papers.
  2. Andrew Hughes Hallett & John Lewis, 2005. "Fiscal Discipline before and after EMU - Permanent Weight Loss or Crash Diet?," Vanderbilt University Department of Economics Working Papers 0516, Vanderbilt University Department of Economics.
  3. Alessandro Turrini, 2008. "Fiscal policy and the cycle in the Euro Area: The role of government revenue and expenditure," European Economy - Economic Papers 323, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  4. Tujula, Mika & Wolswijk, Guido, 2004. "What determines fiscal balances? An empirical investigation in determinants of changes in OECD budget balances," Working Paper Series 0422, European Central Bank.
  5. Karsten Staehr, 2007. "Fiscal Policies and Business Cycles in an Enlarged Euro Area," CESifo Working Paper Series 1933, CESifo Group Munich.
  6. Golinelli, Roberto & Momigliano, Sandro, 2006. "Real-time determinants of fiscal policies in the euro area," Journal of Policy Modeling, Elsevier, vol. 28(9), pages 943-964, December.
  7. James H. Stock & Motohiro Yogo, 2002. "Testing for Weak Instruments in Linear IV Regression," NBER Technical Working Papers 0284, National Bureau of Economic Research, Inc.
  8. Mark Hallerberg & Rolf Strauch, 2002. "On the Cyclicality of Public Finances in Europe," Empirica, Springer, vol. 29(3), pages 183-207, September.
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  10. Forni, Lorenzo & Momigliano, Sandro, 2004. "Cyclical sensitivity of fiscal policies based on real-time data," MPRA Paper 4315, University Library of Munich, Germany.
  11. von Kalckreuth, Ulf & Wolff, Guntram B., 2007. "Testing for contemporary fiscal policy discretion with real time data," Discussion Paper Series 1: Economic Studies 2007,24, Deutsche Bundesbank, Research Centre.
  12. David Roodman, 2006. "How to Do xtabond2," North American Stata Users' Group Meetings 2006 8, Stata Users Group.
  13. Roland, Gérard & Verdier, Thierry, 2000. "Law Enforcement and Transition," CEPR Discussion Papers 2501, C.E.P.R. Discussion Papers.
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  15. repec:cup:cbooks:9780521844413 is not listed on IDEAS
  16. Martin Larch & Matteo Salto, 2005. "Fiscal rules, inertia and discretionary fiscal policy," Applied Economics, Taylor & Francis Journals, vol. 37(10), pages 1135-1146.
  17. Markus Eller, 2009. "Fiscal Position and Size of Automatic Stabilizers in the CESEE EU Member States – Implications for Discretionary Measures," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 78-84.
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