Fiscal policy in Central and Eastern Europe with real time data: cyclicality,inertia and the role of EU accession |
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Authors: | John Lewis |
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Institution: | 1. De Nederlandsche Bank, Economics and Research Division , Postbus 98, Amsterdam 1000AB , The Netherlands j.m.lewis@dnb.nl |
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Abstract: | This article evaluates the cyclicality, inertia and effect of EU accession on fiscal policy in Central and Eastern Europe (CEE) using a real time dataset. Budget balances are found to react in a stabilizing way to economic activity – every extra percentage point of economic growth is associated with an improvement in the budget balance of 0.3 percentage points of Gross Domestic Product (GDP) – and there is no evidence of an asymmetric reaction to the cycle. Balances are much less inert than is typically found in Western Europe. However, there is clear evidence of a fiscal loosening in the run-up to EU accession. This began in 1999 in larger central European countries, often identified as ‘front-runners’. The other seven began loosening in 2001, after the Nice Treaty was agreed. For both sets of countries, this loosening cumulatively amounts to some 3% of GDP. |
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Keywords: | Central and Eastern Europe fiscal policy real time data EU accession |
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