Fiscal Policy in New EU Member States: Go East, Prudent Man!

Ondřej Schneider () and Jan Zapal
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Ondřej Schneider: Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic, http://ies.fsv.cuni.cz/

No 76, Working Papers IES from Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies

Abstract: The European Union (EU) accepted ten new member states (NMS) in 2004. These countries, mostly former socialist countries, have had to adjust their economic policies to the EU’s standards. Perhaps most difficult has proven to be fiscal policy whereby NMS must comply with the Stability and Growth Pact (SGP) rules. Indeed, six out of the ten NMS have breached the SGP limits and were put in Excessive Deficit Procedure (EDP). While the SGP is being modified, fiscal policy is set to remain on the agenda for all NMS in years to come. In this paper, we analyse fiscal policy in the NMS, focusing primarily on time period that immediately preceded their EU accession. We analyse the structure and scale of these countries’ fiscal policy and identify main trends in revenues and expenditures of their public budgets. We then explore dynamics of fiscal policy in the new member states and isolate main factors of the dynamics. Namely, we show how much of the consolidations was due to the fiscal authorities’ effort and how much was caused by external factors. We also show that most NMS’ governments have run rather inconsistent fiscal policy and have not consolidated their budgets appropriately by postponing politically difficult consolidation measures. However, we also identify a group of countries characterised by strong reform efforts and responsible fiscal policy making, supported usually by strong economic growth. In this context, room is given to economic, as well as political economy factors.

Keywords: Fiscal Policy; New Member States; Consolidations; Stability and Growth Pact; Excessive Deficit Procedure; Growth Accounting; Probit Analysis. (search for similar items in EconPapers)
JEL-codes: E6 E62 H6 H87 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2005, Revised 2005
New Economics Papers: this item is included in nep-mac, nep-pbe and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Related works:
Journal Article: Fiscal Policy in New EU Member States: Go East, Prudent Man! (2006)
Working Paper: Fiscal Policy in New EU Member States – Go East, Prudent Man! (2005)
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