On the mechanisms of achieving fiscal (un)sustainability: the case of Poland

Aim of this paper is to assess empirically the sustainability of budgetary policy in Poland in years 1992–2006. Our results show that structural surplus did respond to fiscal shocks in a way that stabilizes debt. However, the debt-stabilizing mechanism relied entirely on the revenue side, while the expenditures moved independently from debt and in a way that is close to non-stationarity. Given numerous bounds on increasing fiscal revenues, such an asymmetric mechanism of ensuring sustainability of Polish public finances is likely to fail if pressure on increasing public expenditures remains high over prolonged periods.