Fiscal policy in Central and Eastern Europe with real time data: Cyclicality, inertia and the role of EU accession

This paper evaluates the cyclicality, inertia and effect of EU accession on fiscal policy in Central and Eastern Europe using a real time dataset. Budget balances are found to react in a stabilising way to economic activity, and they are less inert than is typically found in Western Europe. 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 had been agreed and their EU entry confirmed. For both sets of countries, this loosening cumulatively amounts to some 3% of GDP.