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Is the Fiscal Policy of the Czech Republic Pro-cyclical?

Author

Listed:
  • Martin Rolák

    (Faculty of Finance and Accounting, University of Economics, Prague, Nám. W. Churchilla 4, 130 67 Praha, Czech Republic)

  • Martin Cigán

    (Faculty of Finance and Accounting, University of Economics, Prague, Nám. W. Churchilla 4, 130 67 Praha, Czech Republic)

Abstract

The main goal of this paper is to analyse whether the fiscal policy of the Czech Republic is anti-cyclical. This analysis is carried out through decomposing the government's balance into its cyclical and structural part. The first differences of the structural part are then put in relation to the output gap to determine whether the fiscal policy is pro- or anti-cyclical. Moreover, the correlation of government expenditures and revenues with the business cycle is also subject of our analysis. We also examine whether the fiscal rules which the Czech Republic would have to adhere to once it enters the euro area limit fiscal policy as a stabilizing mechanism.The paper concludes that the fiscal policy in the Czech Republic was for the most part rather of a random character than anti-cyclical during the examined period 1998-2013. This conclusion has two implications. Firstly, there is still room for improvement in fully and consistently utilizing fiscal policy to stabilise the Czech economy throughout economic cycles. Secondly, fiscal rules would not limit the Czech government to practice anti-cyclical fiscal policy if they have been implemented since 1998.

Suggested Citation

  • Martin Rolák & Martin Cigán, 2015. "Is the Fiscal Policy of the Czech Republic Pro-cyclical?," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 63(5), pages 1719-1728.
    • Handle: RePEc:mup:actaun:actaun_2015063051719
    DOI: 10.11118/actaun201563051719
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    References listed on IDEAS

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    1. Servaas Deroose & Martin Larch & Andrea Schachter, 2011. "Constricted, lame and pro-cyclical? Fiscal policy in the euro area revisited," International Journal of Sustainable Economy, Inderscience Enterprises Ltd, vol. 3(2), pages 162-184.
    2. Gilles Mourre & George-Marian Isbasoiu & Dario Paternoster & Matteo Salto, 2013. "The cyclically-adjusted budget balance used in the EU fiscal framework: an update," European Economy - Economic Papers 2008 - 2015 478, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    3. Nathalie Girouard & Christophe André, 2005. "Measuring Cyclically-adjusted Budget Balances for OECD Countries," OECD Economics Department Working Papers 434, OECD Publishing.
    4. Vladimir Bezdek & Kamil Dybczak & Ales Krejdl, 2003. "Czech Fiscal Policy: Introductory Analysis," Working Papers 2003/07, Czech National Bank.
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