Fiscal Adjustments in the European Union versus West Balkans Economies
Fiscal Adjustments in the European Union versus West Balkans Economies

Evidence from Heterogeneous Panels

Summary/Abstract: This paper empirically assesses heterogeneity of fiscal adjustments in the European Union and West Balkans economies, in the circumstances when debt crisis renewed the questions when and how governments adjust their public expenditure. The research covers sample of 28 European Union economies and 5 West Balkans economies over the period 1995-2018. The results based on PMG panel model point to weak fiscal sustainability with significant fiscal adjustments, in average 28.18 % of deviations from equilibrium relationship are corrected in one year. Moreover, the research provides heterogeneous evidence of public expenditure adjustments to long-run equilibrium relationship in European Union and West Balkans economies. According to the results, candidates and potential candidates for European Union membership have improved their public finances, however, accession process does not lead to automatic convergence of these economies and fiscal sustainability assessment.

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