Periods of Fiscal Consolidation in Selected European Economies

Abstract

Economic crisis exacerbated short-term overview for fiscal sustainability in the European Union member countries. Increased burden of the sovereign debt was followed soon by intention of governments to provide an effective timetable of crucial and inevitable fiscal consolidation procedures.In the paper we provide an overview of main trends in public budgets and sovereign debts in European economies from the past Eastern block of countries during last two decades. We identify episodes of successful and unsuccessful (cold showers versus gradual) fiscal (expenditure versus revenue based) consolidations by analyzing effects of improvements in the cyclically adjusted primary balance on the sovereign debt ratio reduction. Effects of fiscal consolidating adjustments are evaluated for pre-crisis and crisis periods to reveal crisis effects on fiscal consolidation efforts. We also provide ideas about a feasibility of expenditure versus revenue based fiscal consolidation episodes (i.e. side effects on the macroeconomic performance).