Public Investment and Fiscal Performance in New EU Member States
CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute)
Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute); CESifo; University of Michigan at Ann Arbor - The William Davidson Institute; Osteuropa Institut; Centre for Economic Policy Research (CEPR)
December 17, 2010
William Davidson Institute Working Paper No. 1006
In this paper we analyze the dynamics of public investment and public finance in new members of the European Union, and also how these sectors were affected by changes in economic freedom and corruption. When we assess the role of regulation and corruption on public investment, we find that improvements in economic freedom tend to be associated with decreases in public investment, while reductions in corruption produce effects going in both directions. Similarly, we show that increases in public investment are often linked with decreases as well as increases in corruption. In terms of public finance we detect mostly improvement in debt when there is less economic regulation, while results for a deficit are less conclusive. On the other hand, improvements in the corruption environment are mostly associated with decreases in the deficit as well as debt. As a general rule that follows from our results, steps aimed at reducing corruption and the degree of economic regulation should lead towards improvements in the fiscal position in most of the new EU countries.
Number of Pages in PDF File: 32
Keywords: public finance, public investment, economic freedom, corruption, EU convergence and integration, macroeconomic policy, fiscal reforms, new EU members
JEL Classification: E61, E62, F42, H50, H60, O11working papers series
Date posted: December 19, 2010
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