What Are Their Words Worth? Political Plans and Economic Pains of Fiscal Consolidations in New EU Member States
|Author(s):|| doc. Ing. Ondřej Schneider MPhil., Ph.D., Jan Zápal|
|Type:||Articles in refereed journals|
|ISSN / ISBN:||ISSN 1617-9595|
|Published in:||CESifo Working Papers|
|Publishing place:||Munich, Germany|
|Abstract:||In this paper, we track the behavior of the fiscal authorities of the ten new EU member states in the period that immediately preceded their EU accession in 2004. We present the basic stylized facts about the public budgets of those countries. We then analyze the reasons that led to fiscal consolidations in the new members. We also present evidence from the preaccession economic and convergence programs of the ten inductees concerning the planed steps of the fiscal authorities and contrast them the subsequent experience.
Throughout the paper, we identify two groups of countries that significantly differ in fiscal behavior. On the one side are the Baltic countries, displaying strong reform efforts and responsible fiscal policy, generally supported by strong economic growth. On the other, we identify fiscally irresponsible central European countries and two Mediterranean states displaying lax fiscal policies and little political will to implement costly reforms. Somewhere in between stand Slovenia and Slovakia, the first without a strong reform performance yet with a budget deficit in compliance with the EU’s stability and growth pact, and the latter undertaking significant reforms.
Our key finding concerning the behavior of the group of fiscally irresponsible countries is that their current problems with high budget deficits originates in their lax approach and unwillingness to implement politically costly expenditure cuts, which is apparent in their repeated budget revisions and deferral of deficit reduction. This strategy has led those countries to uncomfortable positions vis-à-vis European fiscal rules.