The European Journal of Comparative Economics

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EJCE Year: 2017, December. Volume: 14 - Issue: 2

Fiscal Sustainability: Does EU Membership Change Policy Behavior? Empirical Evidence from Central and Eastern Europe

by Bettina Bökemeier

Start page: 161 - End page: 175

Keywords: Fiscal Sustainability, Public Finances, New EU Member States

Jel code: E62; H63

DOI: 10.25428/1824-2979/201702-161-175

Abstract:

This paper studies fiscal policy behavior with regard to sustainability for the group of the eight eastern new member states which joined the European Union in 2004. Using the approach of Bohn (1995, 998) the fiscal reaction function is estimated for the years 1996 until 2013. Further, separating the response in periods before and after accession studies potential changes in fiscal sustainability. The results of the panel regressions reveal a positive statistically significant reaction coefficient, indicating sustainable behavior. Moreover, once the responses are split in 2004 the reaction coefficient is somewhat larger in size ahead of the accession. Accounting for the crisis reveals that these years challenge fiscal sustainability.

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