Fiscal Indulgence in Central Europe

In recent years, fiscal performance in Central Europe has steadily deteriorated, in contrast to the improvement in the Baltics. This paper explores the determinants of such differences among countries slated for EU accession. Regression estimates suggest that economic and institutional fundamentals do not provide a full explanation. An alternative explanation lies in the political economy of the accession process, and a game-theoretic model illustrates why a country with a stronger bargaining position might have an incentive to deviate from convergence to the Maastricht criteria. The model generates alternative fiscal policy regimes-allowing for regime shifts-depending on country characteristics and EU policies.European Union;Fiscal reforms;Budget deficits;Economic models;fiscal policy, fiscal performance, fiscal stance, loose ? fiscal policy, fiscal behavior, fiscal balance, tight ? fiscal policy, fiscal discipline, fiscal misbehavior, fiscal position, fiscal transparency, fiscal policies, fiscal institutions, fiscal deficit, fiscal imbalance, fiscal expansion, fiscal strategy, analytical framework, public finances, fiscal balances, loose fiscal policy, fiscal policy decisions, fiscal positions, fiscal outcomes, fiscal strategies, fiscal consolidation, fiscal reference, public debt, fiscal centralization, fiscal sustainability, fiscal decentralization, fiscal decision, fiscal concern, expansionary fiscal policy, data sources, tax structure, fiscal affairs departments, fiscal imbalances, fiscal affairs, expansionary fiscal, financial institutions, capital expenditure, fiscal policy decision, fiscal adjustment, excessive deficit procedure, fiscal deficits, national budget, interest expenditure, prudent fiscal policy, fiscal risk, fiscal choice, fiscal framework, fiscal costs, excessive deficits, fiscal impulse, budgetary implications, fiscal illusion, public finance, budget constraint, expenditure policy, fiscal course, information asymmetry