The role of fiscal policy in the financial crisis. Challenges and solutions

Since the financial crisis was an economic shock with a considerable unfavorable fiscal component, the prospect of maintaining the sustainability of public finances was a challenge for each country. This study aims to examine the extent to which Central and Eastern European (CEE) countries have been able to acquire or maintain a sustainable fiscal stance both before and during the crisis by empirically estimating three fiscal reaction functions (FRF). Thus, the nature of the fiscal policy promoted within the CEE states, the degree of fiscal sustainability, the persistence of the promoted fiscal behavior and the degree of fiscal discretionism are identified. The results confirm statistically relevant parameters for all three FRFs estimated, indicating the sustainability of public finances in CEE countries, despite the developments implied by the economic crisis