Fiscal sustainability in central and eastern European countries - A post-crisis assessment

Abstract

The aim of this paper is to investigate public finance sustainability for a selected group of ten Central and Eastern European countries. In order to assess the fiscal sustainability of these countries we extend standard analyses typically used for developed countries to our group of ten CEE countries. To assess fiscal sustainability we use panel stationarity and cointegration tests, as well as estimates of certain parameters of fiscal reaction functions. Our research shows that despite the financial turmoil, CEE countries demonstrate the existence of a long-term relationship between revenues and expenditures and they have statistically relevant parameters of the fiscal reaction function. This indicates that the public finances in CEE countries are sustainable despite the crisis. However, the analysed group of countries shows sustainability only in a weak sense, which may pose a threat to public finances in the future.