Convergence in public finances? The case of the new member states of the EU

Author: István Benczes

In: HUN-REN CERS, Institute of World Economics, Working Paper Nr. 275 (2024) June 2024

Abstract

The eight new member states that joined in 2004, followed by three more in Central and Eastern Europe, have achieved a significant degree of convergence in terms of economic development. In the present study, however, we examine whether the size of public finances in the 11 CEE new member states has also approached the EU average, and to what extent the structure of public expenditures and revenues in these countries show similar or different patterns to that of the EU27. The distinction between the size and composition of public finances is rather important because, while empirical research on the sample of developed countries has found a non-existent or negative relationship between government size and economic growth, individual revenue and expenditure items can have very different impacts on economic growth and hence on the convergence process itself. The analysis of public finances can also help identify those commonly shared preferences in spending and revenues where old and new member states can agree on to strengthen the common budget of the EU in the future.