Deficit and Debt in Transition

Deficit and Debt in Transition: The Political Economy of Public Finances in Central and Eastern Europe

Edited by István Benczes
Copyright Date: 2014
Edition: NED - New edition, 1
Pages: 242
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  • Book Info
    Deficit and Debt in Transition
    Book Description:

    The adjustment problems of public finance in countries of Central and Eastern Europe (CEE) are often misunderstood and misinterpreted by western scholars. This book contributes to the bridging of the gap between what is being thought by external observers and what the actual public finance reality is, as described by competent local scholars. Popular political economy research has remained biased towards advanced countries and has neglected developing and transition economies. Publications on CEE countries’ public finances seem to be reluctant to apply the conceptual framework of standard political economy to these countries because of the assumption that CEE economies are different from their Western peers. But is this really the case? Are CEE economies so much different that none of the well-known “Western” political economy concepts or models can be applied to the analysis of fiscal performance in the region? Benczes demonstrates that they can be safely applied in the context of CEE economies as well. He sees no need to develop a separate or unique theory designed for the study and understanding of (one-time) transition economies.

    eISBN: 978-963-386-059-5
    Subjects: Political Science

Table of Contents

  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-vi)
  3. Acknowledgements
    (pp. vii-viii)
    István Benczes
  4. List of Tables
    (pp. ix-x)
  5. List of Figures
    (pp. xi-xii)
  6. List of Boxes
    (pp. xiii-xiii)
  7. List of Abbreviations
    (pp. xiv-xv)
  8. List of Contributors
    (pp. xvi-xvi)
  9. Introduction: Political Economy and Public Finances
    (pp. 1-12)
    István Benczes

    Even without a thorough knowledge of economics and/or political science, a slight sense of reality is just about enough to realise that any public decision is the result of a complex and often ambiguous process amongst a great number of players. Policy choice is, therefore, never simply a technical matter, but a matter of interest and political conflict. If this was not indeed so, then it would be hardly possible to explain why an exogenous shock can affect different countries differently; or why thesameset of policies can have rather different effects from country to country. Consequently, the question...

  10. I. Cross-Country Analysis of Public Finances in Central and Eastern Europe
    • Chapter 1 Economic Freedom and Public Debt in Central and Eastern Europe
      (pp. 15-34)
      Oliver Treidler

      In recent years, various researchers have analyzed the impact of public debt on economic growth. In a pioneering study Reinhart and Rogoff (2010) found that debt levels exceeding 90 percent of the GDP have a negative impact on growth. Subsequent studies have yielded similar results to those obtained by Reinhart and Rogoff. While the identified thresholds vary slightly, the main insight, namely, that a high level of public debt hurts growth, has been confirmed.¹ In the light of the current crisis, policymakers throughout Europe face numerous complex choices. Among the choices, those relating to public finances are arguably the most...

    • Chapter 2 Political Business Cycles: Theory and Empirical Findings for the CEE Region
      (pp. 35-58)
      András Olivér Németh

      By choosing the appropriate tools of economic policy, governments are able to influence economic performance. They can also use this to increase their chances to remain in power. The theory of political business cycles aims to investigate the motives and behavior of politicians and analyze how elections appear in the business cycle. The term “business cycle” originated from Kalecki (1943); however, its meaning has changed since then to some degree, and as economic theory developed, newer and newer models have appeared to explain this phenomenon.

      The first section of this chapter describes the most important theoretical models of political business...

    • Chapter 3 The Strategic Use of Public Debt in Central and Eastern Europe
      (pp. 59-86)
      Vera Takács and István Benczes

      For a long time, the study of political economy (PE) was limited to public choice theory (see especially the original works of Buchanan and Tullock 1962 and Olson 1965) and especially to the analysis of political business cycles (e.g., Nordhaus 1975). In the early nineties, however, an increasing number of mainstream economists engaged in a new stream of research within PE, which was dubbed as political economics. This emerging field was established as a combination of rational choice theory, public choice theory and the Lucas-type rational expectations based macroeconomics. Persson and Tabellini (2000:4) referred to political economics as a unified...

    • Chapter 4 Varieties of Capitalism and Public Finances in Central and Eastern Europe
      (pp. 87-104)
      Zsolt Szabó

      The Varieties of Capitalism (VoC) theory focuses on the institutional structure of capitalist economies and explains the differences between the two ideal typical variants of market economies as liberal and coordinated market economies. After the overview of the essence of VoC, its regional expansion to the former post-socialist countries, and its application to public finance issues, the theory will be used to describe the major characteristics of fiscal policy in new EU member states. As the empirical literature is quite narrow in this field, a primary empirical research will be carried out to examine the similarities between various public finance...

  11. II. Case Studies in the Public Finances of Central and Eastern Europe
    • Chapter 5 Passive Macroeconomic Populism in the Baltics
      (pp. 107-132)
      Gábor Kutasi

      The economic story of the emerging Baltic countries seemed to be a success up until 2007. They were small, open economies with a sustainable and low public debt, and a five to eleven percent permanent annual GDP growth rate; they became member states of the EU, and got rid of the Soviet economic heritage. The region seemed to be very disciplined in a fiscal and monetary sense from the very start of their independence. In the first half of the 2000s they even managed to produce robust economic growth and significant real convergence as compared to the more developed EU...

    • Chapter 6 Values, Norms, and Beliefs: The Case of Poland
      (pp. 133-152)
      Judit Kozenkow

      The Central and Eastern European region provides an excellent field for economists and political and social scientists to challenge the neoclassical theses. Based on the criticisms and deficiencies of these theses, scholars develop new methods and techniques to analyze the process of transition and highlight the significance of determinants other than basic neoclassical factors in economic development. Early studies and guidance from the World Bank and other Western organizations failed to generate successful results in most cases during the transition due to a lack of knowledge about the characteristics of the region’s political, economic, and social environment. Further problems stemmed...

    • Chapter 7 Critical Junctures and Unintended Consequences: The Case of Hungary
      (pp. 153-174)
      István Benczes

      Hungary has been subject to “excessive deficit procedure” right after its accession to the European Union. The country was not able to reduce its public deficit below 3 percent until 2013 and was also unsuccessful in lowering its debt-to-GDP ratio to the 60 percent reference value (its ratio was slightly above 80 percent). The bias for persistent overspending has been coupled with an oversized general government¹ and, more recently, a stagnating economic activity.² That is, the economic troubles and challenges of the one-time forerunner of economic transformation have evidently gone out of bounds. While almost each new EU member state...

    • Chapter 8 Structural Reforms in a Low-Trust Environment: The Case of Slovakia
      (pp. 175-196)
      Dóra Gyõrffy

      Lack of trust is a pervasive feature of post-socialism. The former regime was essentially built on distrust—at an interpersonal level loyalty to the party and the state was expected to take priority over loyalty even to friends and family, while citizens could hardly trust a state, which exercised terror and operated without checks and balances (Kornai 1992; Rose 2009). Building trust proved very difficult during the transition process as well (Sztompka 1996)—while the perceived corruption and moral injustice associated with the privatization process undermined trust in state institutions, the growing inequality hindered the building of interpersonal trust. Such...

    • Chapter 9 Europeanization with a Detour: The Case of Croatia
      (pp. 197-218)
      Fruzsina Sigér

      At the beginning of the 1990s, Croatia was expected to undergo a quick and successful transformation and Europeanization process and a closing-up to the old member states. Contrary to the expectations, Croatia was not eager to join the EU as soon as possible; the country missed the enlargement rounds in the 2000s. The surrounding countries (i.e., transformation countries of Central and Eastern Europe and Southeastern Europe) with a similar or even lower level of economic development had already joined the EU. Croatia is the only country in the region that could have been ready for EU-entry much sooner. Croatia seems...

  12. Index
    (pp. 219-226)
  13. Back Matter
    (pp. 227-227)