Output Decline and Government Expenditures in European Transition Economies

Abstract

In recent discussions on government expenditures in transition economies, it has occasionally been suggested that a fiscal stimulus is needed to overcome the transition-induced recession. As a result, there has been a renewed interest in Keynesian demand policies that are advocated, however cautiously, as a remedy for overcoming the recession quickly (Kornai, 1993; WIIW, 1993). Indeed, it may be argued that some governments in European transition economies have already begun to make expansionary fiscal policies an explicit part of their policy agenda. For example, the current coalition government in Poland, at least in its rhetoric, sees a need for a “temporary and noninflationary” increase in the state budget deficit.