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Absorption Boom and Fiscal Stance; What Lies Ahead in Eastern Europe?


  • Jesmin Rahman


This paper estimates revenue and expenditure pro-cyclicality with respect to output and domestic absorption in new member states of the European Union and Croatia to assess whether these countries used the boom years of 2003-07 to create sufficient fiscal space. The current crisis has found many countries short of fiscal space. As these countries enter a different phase of capital inflows, some with large vulnerabilities and inflexible monetary policy options, the role of fiscal policy becomes more important. This paper also looks at these issues to see how fiscal policy can play a more effective role in demand management in these countries.

Suggested Citation

  • Jesmin Rahman, 2010. "Absorption Boom and Fiscal Stance; What Lies Ahead in Eastern Europe?," IMF Working Papers 10/97, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:10/97

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    References listed on IDEAS

    1. Alberto Alesina & Filipe R. Campante & Guido Tabellini, 2008. "Why is Fiscal Policy Often Procyclical?," Journal of the European Economic Association, MIT Press, vol. 6(5), pages 1006-1036, September.
    2. Graciela L. Kaminsky & Carmen M. Reinhart & Carlos A. Végh, 2005. "When It Rains, It Pours: Procyclical Capital Flows and Macroeconomic Policies," NBER Chapters,in: NBER Macroeconomics Annual 2004, Volume 19, pages 11-82 National Bureau of Economic Research, Inc.
    3. Orban, Gabor & Szapary, Gyorgy, 2004. "The Stability and Growth Pact from the perspective of the new member states," Journal of Policy Modeling, Elsevier, vol. 26(7), pages 839-864, October.
    4. Talvi, Ernesto & Vegh, Carlos A., 2005. "Tax base variability and procyclical fiscal policy in developing countries," Journal of Development Economics, Elsevier, vol. 78(1), pages 156-190, October.
    5. Ethan Ilzetzki & Carlos A. Vegh, 2008. "Procyclical Fiscal Policy in Developing Countries: Truth or Fiction?," NBER Working Papers 14191, National Bureau of Economic Research, Inc.
    6. Lane, Philip R., 2003. "The cyclical behaviour of fiscal policy: evidence from the OECD," Journal of Public Economics, Elsevier, vol. 87(12), pages 2661-2675, December.
    7. Jesmin Rahman, 2008. "Current Account Developments in New Member States of the European Union; Equilibrium, Excess, and EU-Phoria," IMF Working Papers 08/92, International Monetary Fund.
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    Cited by:

    1. Ruben V Atoyan & Jonathan F Manning & Jesmin Rahman, 2013. "Rebalancing; Evidence from Current Account Adjustment in Europe," IMF Working Papers 13/74, International Monetary Fund.
    2. Ruben V Atoyan, 2010. "Beyond the Crisis; Revisiting Emerging Europe’s Growth Model," IMF Working Papers 10/92, International Monetary Fund.
    3. Irina BILAN & Florin OPREA, 2012. "EU fiscal consolidation strategies in times of crisis – comparative approaches," Anale. Seria Stiinte Economice. Timisoara, Faculty of Economics, Tibiscus University in Timisoara, vol. 0, pages 887-894, May.
    4. Ruben V Atoyan & Dustin Smith & Albert Jaeger, 2012. "The Pre-Crisis Capital Flow Surge to Emerging Europe; Did Countercyclical Fiscal Policy Make a Difference?," IMF Working Papers 12/222, International Monetary Fund.
    5. Rilind Kabashi, 2014. "The Cyclical Character of Fiscal Policy in Transition Countries," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 57-73.
    6. Francesco Spadafora & Emidio Cocozza & Andrea Colabella, 2011. "The Impact of the Global Crisison South-Eastern Europe," IMF Working Papers 11/300, International Monetary Fund.
    7. Ruben Atoyan, 2010. "Beyond the crisis: revisiting emerging Europe’s growth model," Financial Theory and Practice, Institute of Public Finance, vol. 34(4), pages 329-356.
    8. Islam, Roumeen, 2013. "Macroeconomic context and fiscal policy : Europe and Central Asia during 2000-2012," Policy Research Working Paper Series 6621, The World Bank.


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