Fiscal Retrenchment in Estonia During the Financial Crisis: The Role of Institutional Factors

Abstract

Unlike most other countries in Europe, which engaged in expansionary fiscal policies in 2009, the government of Estonia followed the opposite path by adopting several austerity packages, combining expenditure cuts and tax increases. This paper explores whether (and to what extent) the theoretical propositions from the literature on political economy of fiscal adjustment that focus on institutional factors are able to explain how it was possible to undertake such extensive fiscal adjustment in Estonia. The case study shows, first, that a coalition government and a minority government are able to achieve fiscal adjustments, especially if there is political commitment to lower the deficit. Second, the study indicates that an externally imposed fiscal rule can act as a major focal point in guiding deficit‐reduction efforts. Third, the Estonian case demonstrates that centralised budgetary institutions are conducive to fiscal adjustment and mitigate the problems arising from size fragmentation.

Reducing Costs in Times of Crisis: Delivery Forms in Small and Medium Sized Local Governments' Waste Management Services

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Crisis and opportunity: Varieties of capitalism and varieties of crisis responses in Estonia and Slovenia

“…This could be said to represent considerable policy continuity, in light of Estonia's emerging liberal market economy (Feldmann, 2006) and the long-standing emphasis on marketbased economic policy (Kattel and Raudla, 2013). In addition to decentralised industrial relations and weakly institutionalised social dialogue at the national level, this was also enhanced by relatively flexible and decentralised markets (Kuokštis, 2011) and also highly centralised budgetary procedures (Raudla, 2013).…”

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“…This goal tied the government to a target to keep the public deficit below 3 percent of GDP and government debt under 60 percent of GDP, as set out in the Maastricht Treaty. In this way, the adoption of the euro turned into a focal point orchestrating the government's action during the crisis management and retrenchment (OECD, 2011: 99;Raudla, 2013). As a response to the crisis, the Estonian government imposed fiscal discipline by applying several consolidation measures across three negative supplementary budgets ( Operational cuts were predominantly achieved by curtailing personnel expenditures through hiring freeze, layoffs, pay and salary cuts, the latter often complemented by unpaid leave or decreased work time.…”