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What Are Their Words Worth? Political Plans And Economic Pains Of Fiscal Consolidations In New EU Member States

In this paper, we track behaviour of fiscal authorities of the ten new EU member states (NSM) in the period which immediately preceded their EU accession. We first present basic stylized facts about public budgets of those countries. The paper then analyses reasons which led to periods of fiscal consolidations in NMS. Secondly, we also present evidence from Pre-Accession Economic and Convergence programmes of NMSs concerning planed steps of fiscal authorities and try to contrast them with reality. Throughout the paper, we identify two different groups of countries which significantly differ in their fiscal behaviour. On the one side is group of Baltic countries displaying strong reform effort and responsible fiscal policy usually supported by strong economic growth. On the second extreme, we identify fiscally irresponsible central European countries and two Mediterranean islands displaying lax fiscal policies and little political will to implement costly reforms. Somewhere between stand Slovenia and Slovakia, first without strong reform performance yet with budget deficit in compliance with Stability and Growth Pact and later for its recent reform efforts. Our key finding concerning behaviour of fiscally irresponsible group of countries is that their current problems with high budget deficits originate in their lax approach and inability to implement politically costly expenditure cuts which is apparent from their revision of budget plans and endeavour to shift envisioned deficit reduction into the future. Yet, this strategy has led those countries to uncomfortable position vis-a-vis European fiscal rules.

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Paper provided by Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies in its series Working Papers IES with number 2006/13.

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Length: 27 pages
Date of creation: Jun 2006
Date of revision: Jun 2006
Handle: RePEc:fau:wpaper:wp2006_13
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  1. Ondrej Schneider & Jan Zapal, 2006. "Fiscal Policy in New EU Member States: Go East, Prudent Man!," Post-Communist Economies, Taylor & Francis Journals, vol. 18(2), pages 139-166.
  2. Strauch, Rolf & Hallerberg, Mark & von Hagen, Jürgen, 2004. "Budgetary forecasts in Europe - the track record of stability and convergence programmes," Working Paper Series 0307, European Central Bank.
  3. Gábor Orbán & György Szapáry, 2004. "The Stability and Growth Pact from the Perspective of the New Member States," MNB Working Papers 2004/4, Magyar Nemzeti Bank (the central bank of Hungary).
  4. Martin Gregor, 2004. "Governing Fiscal Commons in the Enlarged EU," Working Papers IES 56, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised 2004.
  5. Jürgen von Hagen & Andrew Hughes Hallett & Rolf Strauch, 2001. "Budgetary Consolidation in EMU," European Economy - Economic Papers 148, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  6. Roubini, Nouriel & Sachs, Jeffrey D., 1989. "Political and economic determinants of budget deficits in the industrial democracies," European Economic Review, Elsevier, vol. 33(5), pages 903-933, May.
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