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Fiscal Indulgence in Central Europe; Loss of the External Anchor

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Listed:
  • George Kopits
  • Helge Berger
  • Istvan P Szekely

Abstract

In recent years, fiscal performance in Central Europe has steadily deteriorated, in contrast to the improvement in the Baltics. This paper explores the determinants of such differences among countries slated for EU accession. Regression estimates suggest that economic and institutional fundamentals do not provide a full explanation. An alternative explanation lies in the political economy of the accession process, and a game-theoretic model illustrates why a country with a stronger bargaining position might have an incentive to deviate from convergence to the Maastricht criteria. The model generates alternative fiscal policy regimes-allowing for regime shifts-depending on country characteristics and EU policies.

Suggested Citation

  • George Kopits & Helge Berger & Istvan P Szekely, 2004. "Fiscal Indulgence in Central Europe; Loss of the External Anchor," IMF Working Papers 04/62, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:04/62
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. George Kopits, 2007. "Fiscal Responsibility Framework: International Experience and Implications for Hungary," MNB Occasional Papers 2007/62, Magyar Nemzeti Bank (Central Bank of Hungary).
    2. Rupa Duttagupta & Guillermo Tolosa, 2007. "Fiscal Discipline and Exchange Rate Arrangements: Evidence from the Caribbean," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 43(6), pages 87-112, November.
    3. Juan Carlos Cuestas & Karsten Staehr, 2013. "Fiscal shocks and budget balance persistence in the EU countries from Central and Eastern Europe," Applied Economics, Taylor & Francis Journals, vol. 45(22), pages 3211-3219, August.
    4. Philipp Paulus, 2006. "The final blow to the Stability Pact? EMU enlargement and government debt," Otto-Wolff-Institut Discussion Paper Series 03/2006, Otto-Wolff-Institut für Wirtschaftsordnung, Köln, Deutschland.
    5. Rupa Duttagupta & Guillermo Tolosa, 2006. "Fiscal Discipline and Exchange Rate Regimes; Evidence From the Caribbean," IMF Working Papers 06/119, International Monetary Fund.
    6. Kopits, György & Romhányi, Balázs, 2010. "A Költségvetési Tanács indulásának tanulságai
      [Hungarys Fiscal Council: Early lessons]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(7), pages 573-590.
    7. Rafal Benecki & Jens Hölscher & Mariusz Jarmuzek, 2006. "Fiscal transparency and policy rules in Poland," UCL SSEES Economics and Business working paper series 65, UCL School of Slavonic and East European Studies (SSEES).
    8. Staehr, Karsten, 2008. "Fiscal policies and business cycles in an enlarged euro area," Economic Systems, Elsevier, vol. 32(1), pages 46-69, March.
    9. Anthony M Annett, 2006. "Enforcement and the Stability and Growth Pact; How Fiscal Policy Did and Did Not Change Under Europe’s Fiscal Framework," IMF Working Papers 06/116, International Monetary Fund.
    10. J. de Haan & H. Berger & D. Jansen, 2003. "The end of the stability and growth pact?," WO Research Memoranda (discontinued) 748, Netherlands Central Bank, Research Department.
    11. Kocenda, Evzen & Kutan, Ali M. & Yigit, Taner M., 2008. "Fiscal convergence in the European Union," The North American Journal of Economics and Finance, Elsevier, vol. 19(3), pages 319-330, December.
    12. Tanja A. Börzel & Thomas Risse, 2009. "The Transformative Power of Europe: The European Union and the Diffusion of Ideas," KFG Working Papers p0001, Free University Berlin.
    13. Ringa Raudla, 2010. "Governing budgetary commons: what can we learn from Elinor Ostrom?," European Journal of Law and Economics, Springer, vol. 30(3), pages 201-221, December.
    14. 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.
    15. Mikek, Peter, 2008. "Alternative monetary policies and fiscal regime in new EU members," Economic Systems, Elsevier, vol. 32(4), pages 335-353, December.
    16. Kutan, Ali M. & Yigit, Taner M., 2005. "Real and nominal stochastic convergence: Are the new EU members ready to join the Euro zone?," Journal of Comparative Economics, Elsevier, vol. 33(2), pages 387-400, June.
    17. John Lewis, 2007. "Fiscal policy in central and Eastern Europe: what happened in the run-up to EU accession?," International Economics and Economic Policy, Springer, vol. 4(1), pages 15-31, April.
    18. Rupa Duttagupta & Guillermo Tolosa, 2007. "Fiscal Discipline and Exchange Rate Arrangements: Evidence from the Caribbean," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 43(6), pages 87-112, November.
    19. Ayala, Astrid & Blazsek, Szabolcs, 2013. "Structural breaks in public finances in Central and Eastern European countries," Economic Systems, Elsevier, vol. 37(1), pages 45-60.
    20. Przemysław Pacześ, 2012. "Polityczny cykl koniunkturalny w Europie Środkowo-Wschodniej [ Political Business Cycle in Central and Eastern Europe ]," Prace i Materiały, Instytut Rozwoju Gospodarczego (SGH), vol. 88(1), pages 119-139.

    More about this item

    Keywords

    European Economic and Monetary Union; Europe; Fiscal policy; EU economic and monetary union; game-theoretic approach; fiscal performance; fiscal stance; loose ? fiscal policy; fiscal behavior; National Budget; Deficit; and Debt: General; Game Theory and Bargaining Theory: General; game theoretic approach;

    JEL classification:

    • H6 - Public Economics - - National Budget, Deficit, and Debt
    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General

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