Can EU Conditionality Remedy Soft Budget Constraints in Transition Countries?

Herbert Brücker (), Philipp Schröder and Christian Weise

No 375, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: Soft budget constraints (SBCs) are a persistent feature of transition economies and have been blamed for i.a. a lack of fiscal consolidation and sluggish growth. EU eastward enlargement has - among other things - been conditioned on tackling SBCs. This paper analyzes such outside conditionality theoretically and empirically. First, modelling the SBC problem as a war of attrition between the applicant countries' governments and firms we find that outside conditionality can foster SBC hardening. Yet, toughening the EU stance or reducing the number of enlargement rounds may have ambiguous effects. Second, estimating SBC hardening in a partial adjustment model by measuring the reaction of employment to output changes we find that EU conditionality did indeed help candidates to fight SBCs.

Keywords: soft budget constraint; EU enlargement; war of attrition (search for similar items in EconPapers)
JEL-codes: D78 F15 G30 P21 P26 P30 (search for similar items in EconPapers)
Pages: 38 p.
Date: 2003
New Economics Papers: this item is included in nep-eec
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.diw.de/documents/publikationen/73/diw_01.c.40901.de/dp375.pdf (application/pdf)

Related works:
Journal Article: Can EU conditionality remedy soft budget constraints in transition countries? (2005)
Working Paper: Can EU Conditionality Remedy Soft Budget Constraints In Transition Countries? (2004)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:diw:diwwpp:dp375

Access Statistics for this paper

More papers in Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research Contact information at EDIRC.
Bibliographic data for series maintained by Bibliothek ().