BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
No 1/2002:
Integration of the Baltic States into the EU and Institutions of Fiscal Convergence
Ali M. Kutan ()
and Niina Pautola-Mol ()
Abstract: This paper evaluates the functioning, suitability, and
effectiveness of the Maastricht convergence criteria regarding fiscal
policy and the Stability and Growth Pact for the Baltic States. We argue
that the Maastricht fiscal targets from the Baltic perspective should be
considered as long-term goals as opposed to short-run objectives of fiscal
policy. Using the European Commission's approach as well as impulse
response and variance decomposition techniques, we assess the fiscal
discipline and cyclical sensitivity of each state's budget to changes in
output gap. Empirical evidence indicates that Estonia and Latvia have been
more successful in maintaining fiscal discipline than Lithuania during
1996-2000. We also observe that the Stability and Growth Pact signed in
July 1997 would offer enough room for automatic fiscal stabilizers in
Estonia and Latvia, but not necessarily in Lithuania. Policy implications
of the findings for future perspectives are also discussed.
Keywords: EU-enlargement; fiscal policy; Baltic countries; (follow links to similar papers)
41 pages, February 18, 2002
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