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Hooverism, hyperstabilisation or halfway-house? describing fiscal policy in Estonia 1996-2003

  • Rasmus Kattai

    ()

  • John Lewis

    ()

This paper develops a simple framework for describing fiscal policy where policymakers attempt to minimise deviations in output and budget balance from target values. Optimal policy is given by minimising a quadratic loss function subject to a linear structure of the economy. This policy can be viewed as weighted average of two polar cases - the case where the budget deficit adjusts to eliminate any deviations from potential output (hyperstabilisation), and the case where taxes and spending are determined exclusively by some budgetary goal (hooverism). We find some evidence of stabilisation for Poland, Latvia and Estonia. There is no evidence for the Czech Republic, Lithuania, Slovakia and Slovenia, suggesting that fiscal policy was being used for other objectives. The best fit is for Estonia, suggesting that a strict fiscal policy environment may not be incompatible with stabilising fiscal policy.

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File URL: http://www.eestipank.info/pub/en/dokumendid/publikatsioonid/seeriad/uuringud/_2004/_4_2004/_wp_404.pdf
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Paper provided by Bank of Estonia in its series Bank of Estonia Working Papers with number 2004-04.

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Length: 16 pages
Date of creation: 10 Oct 2004
Date of revision: 10 Oct 2004
Publication status: published
Handle: RePEc:eea:boewps:wp2004-04
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References listed on IDEAS
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  1. Hughes Hallett, Andrew & Lewis, John, 2004. "Hansa vs Habsburg: Debt, Deficits and the Entry of Accession Countries into the Euro," CEPR Discussion Papers 4500, C.E.P.R. Discussion Papers.
  2. Rasmus Kattai & Alvar Kangur & Martti Randveer, 2003. "Automatic fiscal stabilisers in Estonia: the impact of economic fluctatios on general government budget balance," Bank of Estonia Working Papers 2003-11, Bank of Estonia, revised 10 Oct 2003.
  3. Alberto Alesina & Roberto Perotti, 1996. "Budget Deficits and Budget Institutions," NBER Working Papers 5556, National Bureau of Economic Research, Inc.
  4. Fatas, Antonio & Mihov, Ilian, 2006. "The macroeconomic effects of fiscal rules in the US states," Journal of Public Economics, Elsevier, vol. 90(1-2), pages 101-117, January.
  5. Buiter, Willem H., 2004. "To Purgatory and Beyond: When and How Should the Accession Countries from Central and Eastern Europe Become Full Members of EMU?," CEPR Discussion Papers 4342, C.E.P.R. Discussion Papers.
  6. 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.
  7. Fatás, Antonio & Mihov, Ilian, 2001. "The Effects of Fiscal Policy on Consumption and Employment: Theory and Evidence," CEPR Discussion Papers 2760, C.E.P.R. Discussion Papers.
  8. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
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