The Domestic Politics of Public Debt: A Central and Eastern European Perspective

Abstract

According to Alesina and Tabellini (1990), persistent deficit and its consequence, debt accumulation, cannot be explained by myopia or political business cycles exclusively. Instead, there is a tendency for incumbent politicians to use both deficit and debt strategically in order to severely limit the new incoming coalition’s spending capacities. Although the relevance of the model was tested in the context of advanced industrialised countries, no systematic analysis has been conducted yet on Central and Eastern European ones. The article argues accordingly that public debt did serve the strategic aims of incumbents in Hungary, Poland and, to a lesser extent, the Czech Republic, but the strategic manipulation of debt was much less straightforward in other cases. It was rather the accession to the European Union (especially its timing) that served as a strategic variable in the reform of public finances in most of the countries in the region.