Does politics matter in the conduct of fiscal policy ? Political determinants of the fiscal sustainability: evidence from seven individual Central and Eastern European countries (CEEC)

Srdjan Redzepagic and Matthieu Llorca ()
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Srdjan Redzepagic: Institute of Economic Sciences Belgrade, CEMAFI - Centre d'Etudes en Macroéconomie et Finance Internationale - UNS - Université Nice Sophia Antipolis (1965 - 2019)
Matthieu Llorca: Laboratoire d'économie et de gestion - UFC - Université de Franche-Comté - UBFC - Université Bourgogne Franche-Comté [COMUE]

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Abstract: This paper aims at assessing the fiscal sustainability and its political deter- minants in seven Central and Eastern European Countries (CEEC), namely Estonia, Latvia, Lithuania, Poland, Slovenia, Slovakia and the Czech Republic. First, using the recent sustainability approach of Bohn (1998) based on fiscal reaction function, econo- metric findings using Ordinary Least Squares (OLS) reveal a positive response of the primary surplus to changes in debt in several countries. In other words, fiscal policy is sustainable in Baltic countries, Slovenia and Slovakia, but not in Poland and in the Czech Republic. Second, by introducing political dummy variables, we test the electoral budget cycle and the partisan cycle theories. We find the presence of electoral and parti- san cycle in Poland but not in the rest of our countries.

Keywords: Fiscal reaction function; Public debt sustainability; Political budget cycles; Time series (search for similar items in EconPapers)
Date: 2007
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Published in Panoeconomicus, 2007, 54 (4), pp.489-500. ⟨10.2298/PAN0704489R⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04704660

DOI: 10.2298/PAN0704489R

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