Recent Articles

Read more about our latest published articles.

Review’s Archive

Marco Tronzano, Università degli Studi di Genova, Dipartimento di Economia e Metodi Quantitativi, Genova, Italia

Testing Fiscal Sustainability in the Transition Economies of Eastern Europe: The Case of Poland (1999-2015)

Volume 70 - Issue 1, February 2017
(pp. 103-132)
JEL classification: C22, E62, H62
Keywords: Fiscal Sustainability, Transition Economies, Poland, Cointegration, Regime Shifts


This paper reassesses the sustainability of public finances in Poland during the last two decades, characterized by the end of the macroeconomic stabilization phase and the implementation of several structural reforms. Cointegration tests allowing for regime-shifts reveal that fiscal policy is “weakly” sustainable, due to a significant divergence between revenues and expenditures in more recent years. Moreover, different from earlier research, I find strong support for bi-directional causality between revenues and expenditures. The main policy implication is that, in order to qualify for EMU membership, Poland should pursue further fiscal consolidation in the years ahead, implementing a more balanced fiscal-mix between revenue enhancement and expenditure reduction measures.

Read the full article

Download the article in PDF format to read and print.


Afonso, A. and C. Rault (2015), “Multi-Step Analysis of Public Finances Sustainability”, Economic Modelling, 48 (Special Issue on Current Challenges on Macroeconomic Analysis and International Finance Modelling), 199-209.
Alesina, A., R. Perotti,  J. Tavares and M. Obstfeld (1998), “The Political Economy of Fiscal Adjustments”, Brookings Papers on Economic Activity, 29(1), 197-266.
Barro, R. (1979), “On the Determination of the Public Debt”, Journal of Political Economy, 87(5), Part 1, 940-971.
Bernardi, L. and M. Chandler (2004), “Main Tax Policy Issues in the New Member States of the EU”, Working Paper, University of Pavia.
Bohn, H. (1998), “The Behavior of US Public Debt and Deficits”, Quarterly Journal of Economics, 113(3), 949-963.
Bohn, H. (2007), “Are Stationarity and Cointegration Restrictions Really Necessary for the Intertemporal Budget Constraint ?”, Journal of Monetary Economics, 54(7), 1837-1847.
Budina, N. and S. Van Wijnbergen (1997), “Fiscal Policies in Eastern Europe”, Oxford Review of Economic Policy, 13(2), 47-64.
Collignon, S. (2012), “Fiscal Policy Rules and the Sustainability of Public Debt in Europe”, International Economic Review, 53(2), 539-567.
Elliott, G., T.J. Rothenberg and J.H. Stock (1996), “Efficient Tests for an Autoregressive Unit Root”, Econometrica, 64(4), 813-836.
Engle, R.F. and C.W.J. Granger (1987), “Co-integration and Error Correction: Representation, Estimation, and Testing”, Econometrica, 55(2), 251-276.
Engle, R.F. and B.S. Yoo (1987), “Forecasting and Testing in Co-integrated Systems”, Journal of Econometrics, 35(1), 143-159.
Friedman, M. (1978), “The Limitations of Tax Limitation”, Policy Review, 78, Summer, 7-14.
Gabriel, V.J., Z. Psaradakis and M. Sola (2002), “A Simple Method of Testing for Cointegration Subject to Multiple Regime Changes”, Economics Letters, 76(2), 213-221.
Green, C.J., M.J. Holmes and T. Kowalski (2001), “Poland: A Successful Transition to Budget Sustainability ?”, Emerging Markets Review, 2(2), 160-182.
Gregory, A.W. and B.E. Hansen (1996), “Residual-Based Tests for Cointegration in Models with Regime Shifts”, Journal of Econometrics, 70(1), 99-126.
Hakkio, C.S. and M. Rush (1991), “Is the Budget Deficit ‘Too Large’?”, Economic Inquiry, 29(3), 429-445.
Hakkio, C.S. and M. Rush (1991b), “Cointegration: How Short is the Long Run ?”, Journal of International Money and Finance, 10(4), 571-581.
Hargreaves, C.P., (1994), Non-Stationary Time-Series, Analysis and Cointegration, Oxford University Press: Oxford.
Hatemi-J, A. (2008), “Tests for Cointegration with two Unknown Regime Shifts with an Application to Financial Market Integration”, Empirical Economics, 35(3), 497-505.
Hoover, K. and S. Sheffrin (1992), “Causation, Spending, and Taxes: Sand in the Sandbox or the Tax Collector for the Welfare State ?”, American Economic Review, 82(1), 225-248.
Johansen, S. (1995), Likelihood-Based Inference in Cointegrating Vector Autoregressive Models, Oxford University Press: New York.
Kierzenkowski, R. (2010), “Preparing for Euro Adoption in Poland”, OECD Economics Department Working Papers No. 790, OECD Publishing.
Kremers, J.M. (1988), “Long-Run Limits on the U.S. Federal Debt”, Economic Letters, 28(3), 259-262.
Kremers, J.M. (1989), “U.S. Federal Indebtedness and the Conduct of Fiscal Policy”, Journal of Monetary Economics, 23(2), 219-238.
Kwiatkowski, D., P.C. Phillips, P. Schmidt and Y. Shin (1992), “Testing the Null Hypothesis of Stationarity Against the Alternative of a Unit Root: How Sure Are We that Economic Time Series Have a Unit Root ?”, Journal of Econometrics, 54(1-3), 159-178.
Llorca, M. and S. Redzepagic (2008), “Debt Sustainability in the EU New Member States: Empirical Evidence from a Panel of Eight Central and East European Countries”, Post-Communist Economies, 20(2), 159-172.
Mackiewicz, M. and P. Krajewski (2009), “On the Mechanisms of Achieving Fiscal (Un)sustainability: The Case of Poland”, Empirica, 36(4), 445-460.
MacKinnon, J. (1991), Critical Values for Cointegration Tests, in: R.F. Engle, C.W.J. Granger  (Eds), “Long-Run Economic Relationships: Readings in Cointegration”, Oxford Press: Oxford.
Maki, D. (2012), “Tests for Cointegration Allowing for an Unknown Number of Breaks”, Economic Modelling, 29(5), 2011-2015.
Mitra, P. and N. Stern (2003), “Tax System in Transition”, World Bank Policy Research Working Paper n. 2947, Washington, D.C.
Musgrave, R. (1966), Principles of Budget Determination, in: H. Cameron, W. Henderson, (Eds), “Public Finance: Selected Readings”, Random House: New York.
OECD (2006), Achieving Fiscal Sustainability, in: “OECD Economic Surveys: Poland 2006”, OECD Publishing: Paris.
OECD (2013), Growth and Governance: Poland’s Strengths and Challenges, in: “Poland: Implementing Strategic-State Capability”, OECD Publishing: Paris.
OECD (2014), OECD Economic Surveys: Poland 2014, OECD  Publishing: Paris.
OECD (2016), OECD Economic Surveys: Poland 2016, OECD  Publishing: Paris.
Phillips, P.C.B. and B.E. Hansen (1990), “Statistical Inference in Instrumental Variables Regression with I(1) Processes”, Review of Economic Studies, 57(1), 99-125.
Quintos, C.E. (1995), “Sustainability of the Deficit Process with Structural Shifts”, Journal of Business and Economic Statistics, 13(4), 409-417.
Rapach, D.E. and C.E. Weber (2008), “The Puzzling Unit Root in the Real Interest Rate and Its Inconsistency with Intertemporal Consumption Behavior”, Journal of International Money and Finance, 27(1), 140-155.
Redzepagic, S. and M. Llorca (2007), “Does Politics Matter in the Conduct of Fiscal Policy? Political Determinants of the Fiscal Sustainability: Evidence from Seven Individual Central and Eastern Europe Countries (CEEC)”, Panoeconomicus, 54(4), 489-500.
Silvestrini, A. (2010), “Testing Fiscal Sustainability in Poland: A Bayesian Analysis of Cointegration”, Empirical Economics, 39(1), 241-274.
Stock, J.H. (1987), “Asymptotic Properties of Least Squares Estimators of Cointegrating Vectors”, Econometrica, 55(5), 1035-1056.
Stock, J.H. and M.W. Watson (1993), “A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems”, Econometrica, 61(4), 783-820.
Stoian, A. and E. Campeanu (2010), “Fiscal Policy Reaction in the Short Term for Assessing Fiscal Sustainability in the Long Run in Central and Eastern European Countries”, Finance a Uver/Czech Journal of Economics and Finance, 60(6), 501-518.
Trachanas, E. and C. Katrakilidis (2013), “Fiscal Deficits Under Financial Pressure and Insolvency: Evidence for Italy, Greece and Spain”, Journal of Policy Modeling, 35(5), 730-749.
Trehan, B. and C. Walsh (1988), “Common Trends, the Government Budget Constraint, and Revenue Smoothing”, Journal of Economic Dynamics and Control, 12(2), 425-444.
Trehan, B. and C. Walsh (1991), “Testing Intertemporal Budget Constraints: Theory and Applications to US Federal Budget and Current Account Deficits”, Journal of Money, Credit, and Banking, 23(2), 206-223.
Wilcox, D.W. (1989), “The Sustainability of Government Deficits: Implications of the Present-Value Borrowing Constraint”, Journal of Money, Credit, and Banking, 21(3), 291-306.
Zivot, E. and D. Andrews (2002), “Further Evidence on the Great Crash, the Oil Price Shock, and the Unit-Root Hypothesis”, Journal of Business & Economic Statistics, 20(1), 25-44.

Register your account

First-time users should click on “Register your account” and enter the requested information. Upon successful registration, you will receive an e-mail with instructions to verify your registration.

Submission Guidelines

Authors’ login

Use the assigned user ID and password to login. Please, do not register again. Usernames and passwords may be changed after.

Quick search by author:
Back to the top

Institute for International Economics
of the Genoa Chamber of Commerce

Istituto di Economia Internazionale
Camera di Commercio di Genova
Via Garibaldi, 4 (III piano) - 16124 Genova (Italy)