Abstract:

The aim of this paper is to analyze the relationship between fiscal policy and systemic risk for European Union (EU) countries from the Central and Eastern Europe for period 2004 – 2015. First we will estimate the Granger causality degree, based on Granger causality methodology, which will be used as proxy for systemic risk. Second we will make a regression model between fiscal policy (governmental revenues and governmental expenditures) and systemic risk (Granger causality degree).The main results of the paper pointed out that during financial crisis period the Granger causality degree increased which affected the probability for triggering the systemic risk. Our results confirm that fiscal policy has a significant effect on systemic risk for each stock market, positive effect for Bulgaria, Hungary and Poland, and negative effect for Czech Republic, Romania and Slovakia. Similar results are obtain for the effects of systemic risk over the fiscal policy.