Fiscal Policies in Eastern Europe

Nina Budina and Sweder van Wijnbergen

Oxford Review of Economic Policy, 1997, vol. 13, issue 2, 47-64

Abstract: We focus on the role of fiscal policies in macroeconomic stabilization in eastern Europe and assess the sustainability of fiscal policies for the central and eastern European economies in transition. We show the main causes of fiscal imbalances experienced at the beginning of the transition process. Countries that adopted tight fiscal policies were more successful with their inflation stabilization programmes, have experienced a faster recovery of growth, and did not experience a steeper decline in output. Countries with unsustainable fiscal policies all floated their exchange rate, but there are both floating and peg arrangements among the successful stabilizers. In all the successful cases, however, current account convertibility was established. We also discuss the experience of Poland and Romania--two polar cases in terms of fiscal policies and present lessons and policy recommendations for other economies in transition. Copyright 1997 by Oxford University Press.

Date: 1997
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