Fiscal sustainability in cee countries – the case of the Czech Republic, Hungary and Poland

Abstract

The aim of the study is to assess fiscal sustainability in the Czech Republic, Hungary and Poland and to test for existence of fiscal dominance in these countries in the context of the fiscal theory of the price level. The empirical study is conducted using unit root tests and cointegration analysis with possible structural breaks. The approach is consistent with so called backward-looking approach for fiscal dominance testing proposed by Bohn (1998). The results suggest that in the Czech Republic and Poland fiscal dominance prevailed in the analyzed period, while in Hungary – monetary dominance. The result for Hungary may be caused, however, by a one-time reduction in debt resulting from changes in pension system.