GERMAN FISCAL POLICY EFFECTS ON ECONOMIC GROWTH IN THE CENTRAL AND EAST EUROPEAN COUNTRIES

Economically developed countries of the European Union are able to significantly influence the development of the countries of Central and Eastern Europe (CEE). In this context, it seems important to analyse Germany's fiscal austerity policies, which have a distinct impact on post-crisis economic recovery for individual CEE countries. Germany's fiscal policy has shown that, after a short increase in government spending, there has been a return to a balanced budget and a further budget surplus in the post-crisis period. It is therefore important to analyze the impact of Germany's fiscal policy on the dynamics of income growth in the CEE countries. For quarterly data of 10 Central and East European countries over the 2002–2014 period, it is found that fiscal austerity in Germany via government expenditure cuts contributes significantly to cyclical GDP and industrial output growth measured as deviation from equilibrium trend. However, there is no the same positive external effect of higher budget revenues in Germany. In general, Germany's fiscal savings policy has a stimulating effect overseas from reducing tax revenues and reducing government spending. For countries with floating exchange rates, the external effects of Germany's fiscal policy are slightly weaker compared to countries using a fixed exchange rate.