Fiscal Indulgence in Central Europe: Loss of the External Anchor

Author/Editor:

George Kopits ; Helge Berger ; Istvan P Szekely

Publication Date:

April 1, 2004

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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.

Series:

Working Paper No. 2004/062

Subject:

Conventional peg Exchange rate arrangements Fiscal policy Fiscal stance Foreign exchange Government debt management Public financial management (PFM)

English

Publication Date:

April 1, 2004

ISBN/ISSN:

9781451848311/1018-5941

Stock No:

WPIEA0622004

Pages:

23

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