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Integration of the Baltic states into the EU and institutions of fiscal convergence: A critical evaluation of key issues and empirical evidence

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  • Kutan, Ali M.
  • Pautola-Mol, Niina

Abstract

This paper reviews the issues concerning the integration of the Baltic States into the European Union (EU). The focus is on fiscal policy and institutions of policy convergence. More specifically, we evaluate the functioning, suitability, and effectiveness of the Maastricht convergence criteria on fiscal policy and the Stability and Growth Pact for Estonia, Latvia, and Lithuania. Using the European Commission's approach, we estimate output gap measures to provide empirical evidence on fiscal discipline and cyclical sensitivity of each state's budget to changes in output. Empirical evidence indicates that Estonia and Latvia have been more successful in maintaining fiscal discipline than Lithuania during 1996-2000. Evidence on the cyclical sensitivity of the Baltic States suggests that the Stability and Growth Pact signed in July 1997 would offer enough room for automatic fiscal stabilizers in Estonia and Latvia, but not in Lithuania. Implications of our results for future perspectives are also discussed.

Suggested Citation

  • Kutan, Ali M. & Pautola-Mol, Niina, 2001. "Integration of the Baltic states into the EU and institutions of fiscal convergence: A critical evaluation of key issues and empirical evidence," ZEI Working Papers B 10-2001, University of Bonn, ZEI - Center for European Integration Studies.
  • Handle: RePEc:zbw:zeiwps:b102001
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    Cited by:

    1. Babetskii, Ian & Boone, Laurence & Maurel, Mathilde, 2004. "Exchange rate regimes and shocks asymmetry: the case of the accession countries," Journal of Comparative Economics, Elsevier, vol. 32(2), pages 212-229, June.
    2. Maurel, Mathilde, 2004. "Current account constraint as a barrier to international trade: the evidence from the European enlargement process?," Economic Systems, Elsevier, vol. 28(3), pages 301-317, September.
    3. Babetskii, Ian & Boone, Laurence & Maurel, Mathilde, 2002. "Exchange Rate Regimes and Supply Shocks Asymmetry: The Case of the Accession Countries," CEPR Discussion Papers 3408, C.E.P.R. Discussion Papers.
    4. Maurel, Mathilde, 2002. "On the Way of EMU Enlargement towards CEECs: What is the Appropriate Exchange Rate Regime?," CEPR Discussion Papers 3409, C.E.P.R. Discussion Papers.

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