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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)

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  • Srđan Redžepagić

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

  • Matthieu Llorca

    () (University of Burgundy, LEG/CEMF, France)

Abstract

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.

Suggested Citation

  • Srđan Redžepagić & Matthieu Llorca, 2007. "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)," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 54(4), pages 489-500, December.
  • Handle: RePEc:voj:journl:v:54:y:2007:i:4:p:489-500
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    References listed on IDEAS

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    Cited by:

    1. Ademmer, Esther & Dreher, Ferdinand, 2014. "Institutional constraints to political budget cycles in the enlarged EU," Kiel Working Papers 1964, Kiel Institute for the World Economy (IfW).
    2. Mirdala, Rajmund, 2016. "Effects of Fiscal Policy Shocks in the Euro Area (Lessons Learned from Fiscal Consolidation)," MPRA Paper 79920, University Library of Munich, Germany.
    3. J. Stephen Ferris, 2010. "Fiscal Policy from a Public Choice Perspective," Carleton Economic Papers 10-10, Carleton University, Department of Economics.
    4. Rajmund Mirdala, 2013. "Lessons Learned from Tax vs. Expenditure Based Fiscal Consolidation in the European Transition Economies," William Davidson Institute Working Papers Series wp1058, William Davidson Institute at the University of Michigan.
    5. Tronzano, Marco, 2017. "Testing Fiscal Sustainability In The Transition Economies Of Eastern Europe: The Case Of Poland (1999-2015)," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 70(1), pages 103-132.
    6. Veronika Å uliková & Marianna SiniÄ Ã¡ková & Denis Horváth, 2014. "Twin Deficits in Small Open Baltic Economies," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 61(2), pages 227-239, March.
    7. Mirdala, Rajmund, 2009. "Effects of Fiscal Policy Shocks in the European Transition Economies," MPRA Paper 19481, University Library of Munich, Germany.
    8. Mirdala, Rajmund, 2013. "Lessons Learned from Tax versus Expenditure Based Fiscal Consolidation in the European Transition Economies," MPRA Paper 46792, University Library of Munich, Germany.
    9. Unver, Mustafa & Dogru, Bulent, 2015. "The Determinants of Economic Fragility: Case of the Fragile Five Countries," MPRA Paper 68734, University Library of Munich, Germany, revised 2015.

    More about this item

    Keywords

    Fiscal reaction function; Public debt sustainability; Political budget cycles; Time series;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism

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