Diffuse support and budget deficit: Evidence from Estonia and Hungary
Date
2010
Authors
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Journal ISSN
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Publisher
Tartu Ülikool
Abstract
The current paper investigates why persistent differences exist among countries
in their ability to pursue disciplined fiscal policy. It contributes to the literature that
emphasizes the importance of multidisciplinary approach in understanding economic
phenomena. An existing theory - that focuses primarily on old EU member states – is
used as framework. In the first part of the paper the theory’s general applicability to the
Central and Eastern European Region is tested. In line with the framework theory’s
suggestion, evidence from 10 Central and Eastern European countries shows that in the
absence of extreme external factors, that would push governments towards fiscal
restraint, the key to persistent fiscal discipline is a favorable institutional setting
(adequate fiscal rules). It primarily depends on certain domestic political and social
factors whether this institutional setting is created in a country. The framework theory
emphasizes the importance of consensus within the elite and diffuse support in the
society towards the political system. In the second part the cases of Estonia and
Hungary (the two extremes of fiscal performance in the region) are compared and the
results support the validity of the above suggestions. Nevertheless the theory has major
shortcomings in the operationalization of diffuse support, which is essential for general
applicability. Based on the results of the case comparison the current paper suggests that
focusing on attitudes regarding the previous political system is a promising direction for
further research on the operationalization of diffuse support as far as post-communist
transition countries are concerned.