Fiscal sustainability in theEUafter the global crisis: Is there any progress? Evidence from Poland

Abstract

AbstractIn response to the global crisis, a number of new institutional measures have been introduced in the fiscal framework, both on the EU and on the member states' level, and the question is: Have these measures provided better fiscal sustainability outcomes? We approach this question by looking at the evolution of fiscal sustainability in Poland, which is an interesting case of a member state that without significant market pressure (the only EU country without recession during the crisis) actively promoted several changes in the EU fiscal framework (e.g., six‐pack) and effectively internalized some of these key changes in its domestic fiscal policy, including a domestic expenditure fiscal rule. Our analysis reveals that the fiscal sustainability in Poland has significantly improved in the post‐crisis period of 2009–2017: We detect both improvement of the fiscal sustainability parameters and structural breaks in the fiscal outcomes after the crisis. Namely, in comparison to the whole sample of 2004–2017 the strength of reaction of the primary deficit to a change of the public debt increased in the post‐crisis time by nearly 50%. Importantly, these results are robust with respect to the pension fund reform which led to a one‐off redemption of T‐bonds in amount of 8.5% of GDP. The analysis also reveals a cycle of structural breaks of 2‐and 4 years lags: For the output gap in 2008 Q4, for the primary deficit in 2010 Q4 and for the public debt in 2014 Q1. The case of Poland seems to suggest that the post‐crisis EU fiscal measures can be effectively used to increase fiscal sustainability, if properly approached and internalized into the domestic fiscal framework. More research should be devoted to understanding the political and economic conditions under which such positive outcomes were possible.