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Does Politics Matter in the Conduct of Fiscal Policy? Political Determinants of the Fiscal Sustainability: Evidence from Seven Individual Central and Eastern European Countries (CEEC)

  • Srđan Redžepagić

    ()

    (Institute of Economic Sciences, Belgrade, Serbia; University of Nice Sophia-Antipolis, CEMAFI, France)

  • Matthieu Llorca

    ()

    (University of Burgundy, LEG/CEMF, France)

Registered author(s):

    This paper aims at assessing the fiscal sustainability and its political determinants in seven Central and Eastern European Countries (CEEC), namely Estonia, Latvia, Lithuania, Poland, Slovenia, Slovakia and the Czech Republic. First, using the recent sustainability approach of Bohn (1998) based on fiscal reaction function, econometric findings using Ordinary Least Squares (OLS) reveal a positive response of the primary surplus to changes in debt in several countries. In other words, fiscal policy is sustainable in Baltic countries, Slovenia and Slovakia, but not in Poland and in the Czech Republic. Second, by introducing political dummy variables, we test the electoral budget cycle and the partisan cycle theories. We find the presence of electoral and partisan cycle in Poland but not in the rest of our countries.

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    File URL: http://www.panoeconomicus.rs/casopis/osmibroj/does%20politics%20matter%20in%20the%20conduct%20of%20fiscal%20policy.pdf
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    Article provided by Savez ekonomista Vojvodine, Novi Sad, Serbia in its journal Panoeconomicus.

    Volume (Year): 54 (2007)
    Issue (Month): 4 (December)
    Pages: 489-500

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    Handle: RePEc:voj:journl:v:54:y:2007:i:4:p:489-500
    Contact details of provider: Web page: http://www.panoeconomicus.rs/

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    1. Ondrej Schneider & Jan Zápal, 2005. "Fiscal Policy in New EU Member States – Go East, Prudent Man!," CESifo Working Paper Series 1486, CESifo Group Munich.
    2. Quintos, Carmela E, 1995. "Sustainability of the Deficit Process with Structural Shifts," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(4), pages 409-17, October.
    3. Henning Bohn, 1998. "The Behavior Of U.S. Public Debt And Deficits," The Quarterly Journal of Economics, MIT Press, vol. 113(3), pages 949-963, August.
    4. Neck, Reinhard & Getzner, Michael, 2001. " Politico-Economic Determinants of Public Debt Growth: A Case Study for Austria," Public Choice, Springer, vol. 109(3-4), pages 243-68, December.
    5. James D. Hamilton & Marjorie A. Flavin, 1985. "On the Limitations of Government Borrowing: A Framework for Empirical Testing," NBER Working Papers 1632, National Bureau of Economic Research, Inc.
    6. Barro, Robert J, 1979. "On the Determination of the Public Debt," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 940-71, October.
    7. Alberto Alesina & Roberto Perotti, 1995. "The Political Economy of Budget Deficits," IMF Staff Papers, Palgrave Macmillan, vol. 42(1), pages 1-31, March.
    8. Gottfried Haber & Reinhard Neck, 2006. "Sustainability of Austrian Public Debt: A Political Economy Perspective," CESifo Working Paper Series 1816, CESifo Group Munich.
    9. Bohn, H., 1990. "The Sutainability Of Budget Deficits In A Stochastic Economy," Weiss Center Working Papers 6-90, Wharton School - Weiss Center for International Financial Research.
    10. László Csontos & János Kornai & István György Tóth, 1998. "Tax awareness and reform of the welfare state: Hungarian survey results," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 6(2), pages 287-312, November.
    11. Corsetti, Giancarlo & Roubini, Nouriel, 1992. "Tax Smoothing Discretion Versus Balanced Budget Rules in the Presence of Politically Motivated Fiscal Deficits: The Design of Optimal Fiscal Rules for Europe after 1992," CEPR Discussion Papers 682, C.E.P.R. Discussion Papers.
    12. Nordhaus, William D, 1975. "The Political Business Cycle," Review of Economic Studies, Wiley Blackwell, vol. 42(2), pages 169-90, April.
    13. Berger, Helge & Kopits, George & Székely, István P., 2006. "Fiscal indulgence in Central Europe: loss of the external anchor?," Discussion Papers 2006/9, Free University Berlin, School of Business & Economics.
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