THE PRICE OF STABILITY: LESSONS FROM THE FISCAL CONSOLIDATION ATTEMPTS IN THE CEE COUNTRIES

Abstract

The article examines the cost of macroeconomic stability in the countries of Central and Eastern Europe (CEE) through comparative analysis and panel estimates based on a balanced panel of 11 countries over the period 1995–2024. The empirical approach is tailored to the actually available database: fiscal consolidation attempts are measured through the improvement in the observed budget balance rather than through structural fiscal indicators, which are absent from the dataset used. The results reveal persistent differences between the cautious, expansionary, and consolidation fiscal regimes. The estimated panel models do not support the hypothesis of a universal short-term cost of stabilization: in the baseline specification, the improvement in the budget balance is positively, albeit only weakly significantly, associated with economic growth. At the same time, the composition of the fiscal adjustment turns out to be decisive: restrictive fiscal policy based predominantly on revenue increases is negatively and statistically significantly associated with growth, whereas adjustment based mainly on expenditure reductions is associated with more favourable macroeconomic dynamics. Bulgaria is examined as a separate case study. The analysis shows that the earlier accumulation of fiscal buffers has limited the debt-related cost of stability, but has not fully eliminated the tension between the objectives of macroeconomic stabilization and the dynamics of investment activity.