Fiscal Indulgence in Central Europe: Loss of the External Anchor

George Kopits, Helge Berger and Istvan P Szekely

No 2004/062, IMF Working Papers from International Monetary Fund

Abstract: In recent years, fiscal performance in Central Europe has steadily deteriorated, in contrast to the improvement in the Baltics. This paper explores the determinants of such differences among countries slated for EU accession. Regression estimates suggest that economic and institutional fundamentals do not provide a full explanation. An alternative explanation lies in the political economy of the accession process, and a game-theoretic model illustrates why a country with a stronger bargaining position might have an incentive to deviate from convergence to the Maastricht criteria. The model generates alternative fiscal policy regimes-allowing for regime shifts-depending on country characteristics and EU policies.

Keywords: WP; exchange rate; political economy; Fiscal policy; EU economic and monetary union; game-theoretic approach; EU accession; EU policy change; EU policy position; EU membership; EU institution; EU position; Fiscal stance; Exchange rate arrangements; Conventional peg; Government debt management; Baltics; Europe (search for similar items in EconPapers)
Pages: 23
Date: 2004-04-01
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Citations: View citations in EconPapers (13)

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Related works:
Journal Article: FISCAL INDULGENCE IN CENTRAL EUROPE: LOSS OF THE EXTERNAL ANCHOR? (2007)
Working Paper: Fiscal indulgence in Central Europe: loss of the external anchor? (2006)
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