In recent years, fiscal performance in Central Europe has steadily
deteriorated, in contrast to the improvement in the Baltics. This paper
explores the determinants of such differences among countries on the path to
EU accession. Regression estimates suggest that economic and institutional
fundamentals do not provide a full explanation. An alternative explanation
lies in the political economy of the accession process, and a game-theoretic
model illustrates why a country with a stronger bargaining position might have
an incentive to deviate from convergence to the Maastricht criteria. The model
generates alternative fiscal policy regimes—allowing for regime
shifts—depending on country characteristics and EU policies
