Information about Europe Europa
Back Matter

Back Matter

Author(s):
International Monetary Fund
Published Date:
April 2002
Share
  • ShareShare
Information about Europe Europa
Show Summary Details
References

    ÅslundAnders2001“The Myth of Output Collapse after Communism,”Working Paper 18 (Washington: Carnegie Endowment for International Peace).

    • Search Google Scholar
    • Export Citation

    BaldwinRichard and PaulKrugman2000 “Agglomeration, Integration, and Tax Harmonization,”CEPR Discussion Paper No. 2630 (London: Centre for Economic Policy Research).

    • Search Google Scholar
    • Export Citation

    Bank of Estonia2000“On Nominal and Real Convergence: The Case of Estonia” paper presented at the Seminar on Accession Process: Price Dynamics in Accession Countries Vienna AustriaDecember152000. Available via Internet: http://www.ee/epbe/en/art010117_2/.

    • Search Google Scholar
    • Export Citation

    BarroRobert J.1989“Economic Growth in a Cross Section of Countries,”NBER Working Paper No. 3120 (Cambridge, Massachusetts: National Bureau of Economic ResearchSeptember.)

    • Search Google Scholar
    • Export Citation

    BarroRobert J.XavierSala-i-Martin1992“Public Finance in Models of Economic Growth,”Review of Economic StudiesVol. 59 (March) pp. 64561.

    • Search Google Scholar
    • Export Citation

    BarryFrankJ.Bradley and E.O’Malley1999“Indigenous and Foreign Industry: Characteristics and Performance” in Understanding Ireland’s Economic Growthed. byFrankBarry (New York: St. Martin’s).

    • Search Google Scholar
    • Export Citation

    BeggDavid and C.Wyplosz1999“How Big a Government? Transition Economy Forecasts Based on OECD History”paper prepared for the Fifth Dubrovnik Conference on Transition Economies, Dubrovnik, CroatiaJune2325.

    • Search Google Scholar
    • Export Citation

    BerengautJulian and others 1998The Baltic Countries: from Economic Stabilization to EU Accession IMF Occasional Paper No. 173 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation

    BlanchardOlivier J.Jean-ClaudeChauragui and Robert P.Hajeman1990“Sustainability of Fiscal Policy: New Answers to an Old Question,”OECD Economic StudiesVol. 15 (Autumn) pp. 736.

    • Search Google Scholar
    • Export Citation

    BlanchardOlivier J. and StanleyFischer1993Lectures on Macroeconomics (Cambridge, Massachusetts: MIT Press).

    BoadwayRobin and DavidWildasin1993“The Political Economy of Government Debt: A Survey” in The Political Economy of Government Debted. byHarrieVerbon and Frans A.A.M.Winden (Amsterdam and New York: North-Holland).

    • Search Google Scholar
    • Export Citation

    CallenTim and ChristianThimann1997“Empirical Determinants of Household Saving: Evidence from OECD Countries,”IMF Working Paper 97/181 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation

    ChalkNigel A. and RichardHemming2000“Assessing Fiscal Sustainability in Theory and Practice,”IMF Working Paper 00/81 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation

    DasekingChristina and CostasChristou2002“Balancing Fiscal Priorities” (unpublished; Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation

    DiamondP.A.1965“National Debt in a Neoclassical Growth Model,”American Economic ReviewVol. 55No. 5 pp. 112650.

    EbrillLiam and OlehHavrylyshyn1999Tax Reform in the Baltics Russia and Other Countries of the Former Soviet Union IMF Occasional Paper No. 182 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation

    European Commission2000Public Finances in EMU—2000 European Economy: Reports and Studies No. 3 (Luxembourg: Office for Official Publications of the European Communities).

    • Search Google Scholar
    • Export Citation

    Eurostat (Statistical Office of the European Communities)1996European System of Accounts: ESA 1995 (Luxembourg: Office for Official Publications of the European Communities).

    • Search Google Scholar
    • Export Citation

    FrankelJeffrey A. and Andrew K.Rose1996“Currency Crashes in Emerging Markets: An Empirical Treatment,”Journal of International EconomicesVol. 41 (November) pp. 35166.

    • Search Google Scholar
    • Export Citation

    GeorgakopoulosT.1994“Fiscal Policy” in Greece and EC Membership Evaluateded. byPanosKazakos and PanayotisIoakimidis (New York: St. Martin’s).

    • Search Google Scholar
    • Export Citation

    GersonPhilip1998“The Impact of Fiscal Policy Variables on Output Growth,”IMF Working Paper 98/1 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation

    GuptaSanjeevLucLeruthLuiz deMello and ShamitChakravarti2001“Transition Economies: How Appropriate Is the Size and Scope of Government,”IMF Working Paper 01/55 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation

    HaqueNadeem UIHashemPesaran and SunilSharma1999“Neglected Heterogeneity and Dynamics in Cross-Country Savings Regressions,”IMF Working Paper 99/128 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation

    HendricksLutz1999“Taxation and Long-Run Growth,”Journal of Monetary EconomicsVol. 43 (April) pp. 41134.

    HonohanP.1999“Fiscal Adjustment and Disinflation in Ireland: Setting the Macro Basis of Economic Recovery and Expansion” in Understanding Ireland’s Economic Growthed. byFrankBarry (New York: St. Martin’s).

    • Search Google Scholar
    • Export Citation

    International Monetary Fund1996World Economic Outlook (WashingtonMay).

    International Monetary Fund1998Trade Liberalization in IMF-Supported Programs World Economic and Financial Surveys (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation

    International Monetary Fund2000“Hungary—Selected Issues and Statistical Appendix,”IMF Country Reports No. 59 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation

    International Monetary Fund2001World Economic Outlook (Washington: International Monetary FundMay).

    KeaneM. and D.Lucey1997“The CAP and the Farmer” in The Common Agricultural Policyed. byChristopher Ritson and David Harvey2nd ed. (New York and Oxford, U.K.: CAB International).

    • Search Google Scholar
    • Export Citation

    KingRobert G. and SergioRebelo1990“Public Policy and Economic Growth: Developing Neoclassical Implications,” Journal of Political EconomyVol. 98 (October) pp. 12650.

    • Search Google Scholar
    • Export Citation

    KnellerRichardMichaelBleany and NormanGemmel1999“Fiscal Policy and Growth: Evidence from OECD Countries,”Journal of Public EconomicsVol. 74 (November) pp. 17190.

    • Search Google Scholar
    • Export Citation

    KopitsGeorge2000“How Can Fiscal Policy Help Avert Currency Crises?” IMF Working Paper 00/185 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation

    KopitsGeorge and StevenSymansky 1998Fiscal Policy Rules IMF Occasional Paper No. 162 (Washington: International Monetary Fund).

    KrugmanPaul1991Geography and Trade (Cambridge, Massachusetts: MIT Press).

    LeibfritzWilliJohnThornton and AlexandraBibbee1997“Taxation and Economic Performance,”OECD Economics Department Working Paper 176 (Paris).

    • Search Google Scholar
    • Export Citation

    LevineRoss and DavidRenelt1992“Sensitivity Analysis of Cross-Country Growth Regressions,”American Economic ReviewVol. 82 (September) pp. 94263.

    • Search Google Scholar
    • Export Citation

    LucasRobert E. Jr.1988“On the Mechanics of Economic Development,”Journal of Monetary EconomicsVol. 22 (July) pp. 342.

    MassonPaulTamimBayoumi and HosseinSamiei1995“International Evidence on the Determinants of Private Saving,” IMF Working Paper 95/51 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation

    ModiglianiFranco and R.Brumberg1954“Utility Analysis and the Consumption Function: An Interpretation of Cross-Section Data” in Post-Keynesian Economicsed. byKenneth K.Kurihara (New Brunswick, New Jersey: Rutgers University Press).

    • Search Google Scholar
    • Export Citation

    O’DonnellRory1991“Fiscal/Taxation Policy” in Ireland and EC Membership Evaluateded. byPatrickKeatinge (New York: St. Martin’s).

    • Search Google Scholar
    • Export Citation

    OrdazP.1993“Portugal and Trade Policy” in Portugal and EC Membership Evaluateded. byJosé da SilvaLopes (New York: St. Martin’s).

    • Search Google Scholar
    • Export Citation

    PlosserC.I.1992“The Search for Growth” in Policies for Long-Run Economic Growth Symposium Series (Kansas City, Missouri: Federal Reserve Bank of Kansas City).

    • Search Google Scholar
    • Export Citation

    RomerPaul M.1986“Increasing Returns and Long-Run Growth,”Journal of Political EconomyVol. 94 pp. 100237.

    RosenblattJulius and others 1988The Common Agricultural Policy of the European Community: Principles and Consequences IMF Occasional Paper No. 62 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation

    SchiffJerald and others 2000Pension Reform in the Baltics: Issues and Prospects IMF Occasional Paper No. 200 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation

    SlemrodJoel1995“What Do Cross-Country Studies Teach About Government Involvement, Prosperity, and Economic Growth?”Brookings Papers on Economic Activity: 2 pp. 373431.

    • Search Google Scholar
    • Export Citation

    SolowRobert M.1956“A Contribution to the Theory of Economic Growth,”Quarterly Journal of EconomicsVol. 70 (February) pp. 6594.

    • Search Google Scholar
    • Export Citation

    TanziVito and HowellZee1997“Fiscal Policy and Long-Run Growth,”IMF Staff PapersVol. 44 (June) pp. 179209.

    TanziVito and LudgerSchuknecht1996“Reforming Government in Industrial Countries,”Finance and DevelopmentVol. 33 (September) pp. 25.

    • Search Google Scholar
    • Export Citation

    TanziVito and GeorgeTsibouris2000“Fiscal Reform over Ten Years of Transition,”IMF Working Paper 00/113 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation

    Utrilla de la HozA.1993in Spain and EC Membership Evaluateded. byAmparoAlmarcha Babado (New York: St. Martin’s).

    World Bank2002“Real Convergence and European Integration: Lessons for the CEEC Candidates” (Washington,forthcoming).

Recent Occasional Papers of the International Monetary Fund

213. The Baltic Countries: Medium-Term Fiscal Issues Related to EU and NATO Accession, by Johannes Mueller. Christian Beddies, Robert Burgess. Vitali Kramarenko, and Joannes Mongardini. 2002.

212. Financial Soundness Indicators: Analytical Aspects and Country Practices, by V. Sundararajan, Charles Enoch, Armida San José, Paul Hilbers, Russell Krueger, Marina Moretti, and Graham Slack. 2002.

211. Capital Account Liberalization and Financial Sector Stability, by a staff team led by Shogo Ishii and Karl Habermeier. 2002.

210. IMF-Supported Programs in Capital Account Crises, by Atish Ghosh, Timothy Lane, Marianne Schulze-Ghattas, Aleš Bulíř, Javier Hamann. and Alex Mourmouras. 2002.

209. Methodology for Current Account and Exchange Rate Assessments, by Peter Isard, Hamid Faruqee, G. Russell Kincaid, and Martin Fetherston. 2001.

208. Yemen in the 1990s: From Unification to Economic Reform, by Klaus Enders, Sherwyn Williams, Nada Choueiri, Yuri Sobolev, and Jan Walliser. 2001.

207. Malaysia: From Crisis to Recovery, by Kanitta Meesook, II Houng Lee. Olin Liu. Yougesh Khatri, Natalia Tamirisa, Michael Moore, and Mark H. Krysl. 2001.

206. The Dominican Republic: Stabilization, Structural Reform, and Economic Growth, by Alessandro Gius-tiniani, Werner C. Keller, and Randa E. Sab. 2001.

205. Stabilization and Savings Funds for Nonrenewable Resources, by Jeffrey Davis, Rolando Ossowski, James Daniel, and Steven Barnett. 2001.

204. Monetary Union in West Africa (ECOWAS): Is It Desirable and How Could It Be Achieved? by Paul Masson and Catherine Pattillo. 2001.

203. Modem Banking and OTC Derivatives Markets: The Transformation of Global Finance and Its Implications for Systemic Risk, by Garry J. Schinasi, R. Sean Craig, Burkhard Drees, and Charles Kramer. 2000.

202. Adopting Inflation Targeting: Practical Issues for Emerging Market Countries, by Andrea Schaechter, Mark R. Stone, and Mark Zelmer. 2000.

201. Developments and Challenges in the Caribbean Region, by Samuel Itam, Simon Cueva, Erik Lundback, Janet Stotsky, and Stephen Tokarick. 2000.

200. Pension Reform in the Baltics: Issues and Prospects, by Jerald Schiff, Niko Hobdari, Axel Schimmelpfen-nig, and Roman Zytek. 2000.

199. Ghana: Economic Development in a Democratic Environment, by Sérgio Pereira Leite, Anthony Pellechio, Luisa Zanforlin, Girma Begashaw, Stefania Fabrizio, and Joachim Harnack. 2000.

198. Setting Up Treasuries in the Baltics, Russia, and Other Countries of the Former Soviet Union: An Assessment of IMF Technical Assistance, by Barry H. Potter and Jack Diamond. 2000.

197. Deposit Insurance: Actual and Good Practices, by Gillian G.H. Garcia. 2000.

196. Trade and Trade Policies in Eastern and Southern Africa, by a staff team led by Arvind Subramanian, with Enrique Gelbard, Richard Harmsen, Katrin Elborgh-Woytek, and Piroska Nagy. 2000.

195. The Eastern Caribbean Currency Union—Institutions, Performance, and Policy Issues, by Frits van Beek, José Roberto Rosales, Mayra Zermeñ, Ruby Randall, and Jorge Shepherd. 2000.

194. Fiscal and Macroeconomic Impact of Privatization, by Jeffrey Davis, Rolando Ossowski, Thomas Richardson, and Steven Barnett. 2000.

193. Exchange Rate Regimes in an Increasingly Integrated World Economy, by Michael Mussa, Paul Masson, Alexander Swoboda, Esteban Jadresic, Paolo Mauro, and Andy Berg. 2000.

192. Macroprudential Indicators of Financial System Soundness, by a staff team led by Owen Evans, Alfredo M. Leone, Mahinder Gill, and Paul Hilbers. 2000.

191. Social Issues in IMF-Supported Programs, by Sanjeev Gupta, Louis Dicks-Mireaux, Ritha Khemani, Calvin McDonald, and Marijn Verhoeven. 2000.

190. Capital Controls: Country Experiences with Their Use and Liberalization, by Akira Ariyoshi, Karl Habermeier, Bernard Laurens, Inci Ötker-Robe, Jorge Ivàn Canales Kriljenko, and Andrei Kirilenko. 2000.

189. Current Account and External Sustainability in the Baltics, Russia, and Other Countries of the Former Soviet Union, by Donal McGettigan. 2000.

188. Financial Sector Crisis and Restructuring: Lessons from Asia, by Carl-Johan Lindgren, Tomàs J.T. Baliflo, Charles Enoch, Anne-Marie Guide, Marc Quintyn, and Leslie Teo. 1999.

187. Philippines: Toward Sustainable and Rapid Growth, Recent Developments and the Agenda Ahead, by Markus Rodlauer, Prakash Loungani, Vivek Arora, Charalambos Christofides, Enrique G. De la Piedra, Piyabha Kongsamut, Krisdna Kostial, Victoria Summers, and Athanasios Vamvakidis. 2000.

186. Anticipating Balance of Payments Crises: The Role of Early Warning Systems, by Andrew Berg, Eduardo Borensztein, Gian Maria Milesi-Ferretti, and Catherine Pattillo. 1999.

185. Oman Beyond the Oil Horizon: Policies Toward Sustainable Growth, edited by Ahsan Mansur and Volker Treichel. 1999.

184. Growth Experience in Transition Countries, 1990–98, by Oleh Havrylyshyn, Thomas Wolf, Julian Berengaut, Marta Castello-Branco, Ron van Rooden, and Valerie Mercer-Blackman. 1999.

183. Economic Reforms in Kazakhstan, Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan, by Emine Giirgen, Harry Snoek, Jon Craig, Jimmy McHugh, Ivailo Izvorski, and Ron van Rooden. 1999.

182. Tax Reform in the Baltics, Russia, and Other Countries of the Former Soviet Union, by a staff team led by Liam Ebrill and Oleh Havrylyshyn. 1999.

181. The Netherlands: Transforming a Market Economy, by C. Maxwell Watson, Bas B, Bakker, Jan Kees Martijn, and loannis Halikias. 1999.

180. Revenue Implications of Trade Liberalization, by Liam Ebrill, Janet Stotsky, and Reint Gropp. 1999.

179. Disinflation in Transition: 1993–97, by Carlo Cottarelli and Peter Doyle. 1999.

178. IMF-Supported Programs in Indonesia, Korea, and Thailand: A Preliminary Assessment, by Timothy Lane, Atish Ghosh, Javier Hamann, Steven Phillips, Marianne Schulze-Ghattas, and Tsidi Tsikata. 1999.

177. Perspectives on Regional Unemployment in Europe, by Paolo Mauro, Eswar Prasad, and Antonio Spilim-bergo. 1999.

176. Back to the Future: Postwar Reconstruction and Stabilization in Lebanon, edited by Sena Eken and Thomas Helbling. 1999.

175. Macroeconomic Developments in the Baltics, Russia, and Other Countries of the Former Soviet Union,1992–97, by Luis M. Valdivieso. 1998.

174. Impact of EMU on Selected Non-European Union Countries, by R. Feldman, K. Nashashibi, R. Nord, P. Allum, D. Desruelle, K, Enders. R. Kahn, and H. Temprano-Arroyo. 1998.

173. The Baltic Countries: From Economic Stabilization to EU Accession, by Julian Berengaut, Augusto Lopez-Claros, Francoise Le Gall, Dennis Jones, Richard Stern, Ann-Margret Westin, Effie Psalida, Pietro Garibaldi. 1998.

172. Capital Account Liberalization: Theoretical and Practical Aspects, by a staff team led by Barry Eichengreen and Michael Mussa, with Giovanni Dell” Ariccia, Enrica Detragiache, Gian Maria Milesi-Ferretti, and Andrew Tweedie. 1998.

171. Monetary Policy in Dollarized Economies, by Tomàs Baliño, Adam Bennett, and Eduardo Borensztein. 1998.

170. The West African Economic and Monetary Union: Recent Developments and Policy Issues, by a staff team led by Ernesto Hernàndez-Catà and comprising Christidan A. Francois, Paul Masson, Pascal Bouvier, Patrick Peroz, Dominique Desruelle, and Athanasios Vamvakidis. 1998.

169. Financial Sector Development in Sub-Saharan African Countries, by Hassanali Mehran, Piero Ugolini, Jean Phillipe Briffaux, George Iden, Tonny Lybek, Stephen Swaray, and Peter Hayward. 1998.

168. Exit Strategies: Policy Options for Countries Seeking Greater Exchange Rate Flexibility, by a staff team led by Barry Eichengreen and Paul Masson with Hugh Bredenkamp, Barry Johnston, Javier Hamann, Esteban Jadresic, and Inci Otker. 1998.

167. Exchange Rate Assessment: Extensions of the Macroeconomic Balance Approach, edited by Peter Isard and Hamid Faruqee, 1998.

166. Hedge Funds and Financial Market Dynamics, by a staff team led by Barry Eichengreen and Donald Mathieson with Bankim Chadha, Anne Jansen, Laura Kodres, and Sunil Sharma. 1998.

Note: For information on the title and availability of Occasional Papers not listed, please consult the IMF Publications Catalog or contact IMF Publication Services.

1For a more detailed analysis of the Baltics’ transition years, see Berengaut and others (1998).
2At least according to official statistics. For a different interpretation of the initial output collapse, see Åslund (2001).
3The Laeken summit concluded that if the present rate of negotiations and reforms were maintained, the candidate countries would be ready to accede to the EU in 2004, in time for their participation in elections for the European Parliament in the that Of 2004.
4Under the 1992 Maastricht Treaty, the general government fiscal deficit should not exceed 3 percent of GDP and gross government debt 60 percent of GDP. These benchmarks could be exceeded if the excess deficit was small and either temporary or had declined significantly, and debt was on a clear downward path.
5The 1997 SGP requires members of the European Economic and Monetary Union (EMU) to achieve cyclically adjusted fiscal positions that are close to balance or in surplus, so that they can respect the 3 percent deficit ceiling during cyclical downturns. The sanctions part of the SGP applies only to countries that have adopted the euro.
7Estonia’s sovereign rating from Fitch-IBCA and Standard and Poor’s for long-term foreign currency debt is A-, whereas Latvia and Lithuania are rated BBB and BBB-, respectively.
8There is relatively little progrcssivily in the tax systems of the Baltics, since personal income is taxed at a single flat rate. What little progressivily there is comes largely through the personal income tax threshold, which is currently below the minimum wage.
9The analysis in the appendix suggests that the debt ceiling would not be reached for two decades, assuming that there is no increase in the real interest on public debt during that time. This assumption is unlikely given that in Latvia and Estonia, for example, the overall fiscal deficit would have reached 5 ¾ percent by the end of this period.
10Conversely, an imprudent fiscal policy stance could significantly raise interest costs and potentially lead to a liquidity problem for the budget if financing were to dry up.
11The key role for fiscal policy in the Baltics in this regard is as a tool to stabilize aggregate demand. In addition, fiscal policy must support the Baltic countries’ fixed exchange rate mechanisms; in this sense, fiscal policy also has an indirect role to play in maintaining stable and low inflation.
12Whether the 3 percent deficit ceiling under the Maastricht Treaty is sufficient to allow the lull operation of the automatic stabilizers in the Baltics depends on the choice of the medium-term fiscal target, as well as the amplitude of both the cycle and the stabilizers themselves. If GDP falls below its potential by 1 percent age point, fiscal deficits are estimated to increase by about ½ of 1 percentage point on average in EU countries (see European Commission. 2000). However, cyclical volatility could be expected to be larger than the EU average in the Baltic countries, given their characteristics as small open economies. Overall, it seems likely that aiming for a broadly balanced budget over the medium term or economic cycle would enable the Baltics to accommodate a substantial cyclical deterioration in the fiscal position while remaining within the Maastricht 3 percent deficit ceiling.
13The adopted target should be based on a comprehensive measure of the general government’s fiscal position. There could, however, be practical problems in adopting such a target, given the often limited control over local government budgets, and the existence of extrabudgetary funds.
14Such flexibility should, however, also be consistent with other objectives such as external and public debt sustainability. In this regard, it is worth noting that year-to-year departures from the cyclically adjusted fiscal target resulting from the operation of automatic stabilizers would be fully consistent with public and external debt sustainability, provided that the medium-term target is itself consistent with public and external debt sustainability and that the government’s commitment to the fiscal policy rule is fully credible.
15Sweden follows such an approach. An alternative would be to adopt an explicit target for the stock of debt relative to GDP.
16Such an approach was also used in Daseking and Christou (2002).
17Chalk and Hemming (2000) note that the condition of a non-increasing debt ratio, while intuitively appealing and useful for practical purposes, is not the same as the theoretical notion of fiscal sustainability. Fiscal sustainability attempts to determine whether current or alternative policies can be sustained over the long run and is derived in terms of the government’s present value budget constraint. However, as Blanchard, Chauraqul, and Hajeman (1990) note, the above condition is often used as a substitute for the present-value budget constraint.
18For a further discussion, see Boadway and Wildasin (1993). The relationship between debt and economic performance is also likely to vary across countries and from time to time.
19See, for example, Frankel and Rose (1996) and IMF (1998).
20Those forms of FDI that are debt creating should ideally be excluded. The analysis could be further refined by the inclusion on non-debt-creating flows of portfolio equity investment.
21As transition economies, the Baltics can be expected to run large current account deficits, as rapid productivity growth provides profitable investment opportunities in excess of domestic saving. Such foreign saving channeled into productive domestic investment also constitutes a key determinant of the speed of income convergence with advanced economies.
22For further information, see Georgakopoulos (1994) on Greece; O’Donnell (1991) Ireland; Ordaz (1993) on Portugal; and Utrilla de la Hoz (1993) on Spain.
23The agricultural sector in Lithuania is somewhat higher, accounting for 7 percent of GDP.
24The structural funds were introduced in stages since the Treaty of Rome to ameliorate social, agricultural, fisheries, and regional conditions. The Cohesion Fund was created with the European Single Market to reduce the income gap between the EACs and the rest of the EU. Countries with a per capita GNP below 90 percent of the EU average are eligible to draw from this fund.
25The surge in the Irish FDI is partly explained by a strengthening of data collection, which from 1998 onward also covered financial service activities, including those related to the International Financial Services Centre.
26For an in-depth look at the fiscal adjustment in Ireland, see Honohan (1999).
27Measured as the first difference of the ratio of per capita GDP of the EACs (on a PPP basis) to EU average per capita GDP (as shown in Figure 3).
28All variables were derived from the IMF’s International Financial Statistics (IFS) database, except for SIC,t which was based on data from the IMF’s World Economic Outlook database. Some observations in the early 1970s not available in the IFS were derived from IMF staff reports. Although it would be preferable to control also for the Maastricht Treaty and the SGP in equation (3), the timing of the required fiscal adjustment has been different for each EAC; Greece, for example, only met the Maastricht criteria in 2000.
29For a similar conclusion based on qualitative evidence, see World Bank (2002).
31Of the three countries that joined NATO in 1999 (the Czech Republic, Poland, and Hungary), only the first two met the military spending target of 2 percent of GDP at the time of accession; Hungary’s defense expenditure was only about 1 percent of GDP.
32Under the 2001 national budgets, military spending amounts to 1.8 percent of GDP in Estonia, 1.3 percent of GDP in Latvia, and 2 percent of GDP in Lithuania. Latvia aims to raise military spending to 2 percent of GDP by 2003, and Estonia expects to do so by 2002.
33A nonnegligible part of spending that will be supported from the EU is likely to represent a continuation of existing programs. For example, investment in road infrastructure is likely to be undertaken by the national authorities irrespective of EU accession. As a result, the extent of the slowdown in the real increase in non-priority spending in all three scenarios could be overstated. To address this problem, a range is provided in the tables, with the lower end represented by the assumption that half of EU financial assistance and cofinancing would finance existing programs.
34Given the scope of the task, it is assumed that overall fiscal balance would be achieved by 2006 only; in Lithuania, this is assumed to be achieved excluding the costs of pension reform (about ½ of 1 percent of GDP), in contrast to the other two countries. All three countries would have a fiscal deficit below 1 percent of GDP by 2004, the assumed accession year. This translates into a primary surplus beginning that year at the latest.
35Such estimates, including those on the split between the various instruments, are largely based on information from the EU and a study on Lithuania, prepared by Finnish experts in 2000 (PHARE-Project LI/EI 9701, “Support to European Integration in Lithuania (SEIL),” Final Report of the Sub-Project Support for Policy Impact Analysis/Budgetary Impact, Helsinki, August 2000).
36For example, in Latvia, it is projected that the corporate income tax is reduced in three steps from the current rate of 25 percent to 15 percent. At the same time, some tax exemptions under the corporate income tax law and the foreign investment law are being phased out. The scenario also reflects a lowering of the social tax rate from 35 percent in 2001 to 31 percent by 2006.
37The different real spending growth rates across countries largely reflect differing assumptions for nominal GDP growth and inflation, especially in the early years. For example, consumer price inflation is higher in Estonia than in Latvia and Lithuania, especially in 2001, reflecting Estonia’s peg to the euro. This reduces real spending growth in Estonia relative to Latvia despite similarities in the level of necessary cuts relative to GDP. The relatively low growth in nominal and real GDP in Lithuania leads to tower real spending increases than in the other two cases.

    Other Resources Citing This Publication