On The Mechanisms of Achieving Fiscal (Un)Sustainability – The Case of Poland

Aim of this paper is to assess empirically the sustainability of budgetary policy in Poland in Years 1992-2005. Our results show that structural surplus did not respond in a way that would stabilize the level of public debt, thus not fulfilling the condition of sustainability. It also showed asymmetric behaviour of revenues and expenditures: while the former tended to adjust to the level of debt in a stabilizing manner, the latter moved independently from debt, while also in a non-stationary way, which made fiscal policy unsustainable in the long run. Fiscal institutions were unable to respond in a debt- stabilizing manner to two large negative budgetary shocks: structural reforms of the public sector, and joining the EU. This makes them unlikely to respond to the future fiscal shocks, and suggests that fiscal institutions in Poland lack the ability to run sustainable fiscal policy.