Fiscal assessment in the tax-spending nexus: A tale of central and eastern european countries

The purpose of this paper is to investigate the relationship in the government spending and taxes nexus in Central and Eastern European (CEE) countries in the period 1999Q1-2014Q1. Empirical test results show the validity of "tax-spend hypothesis" for Slovenia, the "spend-tax hypothesis" for Estonia, Latvia, and Slovakia, the "fiscal synchronization hypothesis" for Romania and Bulgaria. Finally, there are no causality relationship between taxes and spending for Czech Republic, Hungary, Lithuania, and Poland even at the 10% significance level. After Eurozone crisis, it is vital for controlling the excessive imbalances in the budget deficits. We indicate that the main policy implication is essential to reduce the public spending to continue the balance of public finance.