FISCAL POLICY IN CEE COUNTRIES. EVIDENCE FROM CZECH REPUBLIC AND ROMANIA

The author investigates the fiscal policy in CEE countries using evidence from two of the most important economies, Czech Republic and Romania. A small open economy model with a Taylor fiscal rule is estimated on quarterly data for these countries. He explores the potential of counter-cyclical fiscal policy in the context of the on-going financial crisis, the reaction of the fiscal policy to negative demand shocks or to a more relaxed monetary policy, as well as the impact of fiscal shocks. There are evidences that fiscal shocks during the last years behaved in a pro-cyclical way and it appears that the countercyclical potential of fiscal policy during the financial crisis remained largely unused.