Cyclical properties of fiscal policy in new member states of the EU

Martina Dalic

Post-Communist Economies, 2013, vol. 25, issue 3, 289-308

Abstract: The analysis of cyclical properties of government expenditure is performed for new member states and Croatia using a panel data model. The sample covers 1999--2011.The analysis is performed for the main expenditure aggregates as well as their subcomponents. The disaggregated approach is useful in revealing potential differences in the cyclical properties of individual expenditure components since they could move in different and possibly offsetting directions. Procyclical behaviour is found for total general government expenditure as well as for its main components, i.e. current and capital expenditure. The exclusion of interest payments does not alter the result that output expansion is strongly associated with growth in major expenditure aggregates. Furthermore, the same proportional reaction is found for capital expenditure, indicating the presence of the voracity effect. The subcomponents of current expenditure reveal a slightly different pattern. While government wage and non-wage consumption behave in a procyclical manner, social transfers are countercyclical. However, their countercyclical behaviour is not strong enough to overcome the procyclical influence of the wage bill and non-wage consumption on the overall cyclical stance of current expenditure. The evidence of asymmetric behaviour of government expenditure over the cycle is weak.

Date: 2013
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DOI: 10.1080/14631377.2013.813144

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