Fiscal sustainability in EU and current financial/economic crisis

This paper tackles the question of fiscal sustainability in current times of fiscal and economic crisis. We analyse how much space do fiscal policies have in EU member states for battling the crisis under the assumption that they want to remain fiscally sustainable. We use a derivative from Pasinetti's approach – a derivative indicates using cyclically adjusted data for budget balance in order to avoid pro-cyclical bias of Pasinetti's approach. We have confirmed our hypothesis and found that most EU member states have been fiscally sustainable in past (from 2000 onwards). Further, we have found that sustainable budget balance in these countries is moderate deficit. And last, we estimate that more than half EU member states still have some manoeuvre in public spending to tackle the economic crisis, and still remain fiscally sustainable.