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This paper empirically assesses heterogeneity of fiscal adjustments in the European Union and West Balkans economies, in the circumstances when debt crisis renewed the questions when and how governments adjust their public expenditure. The research covers sample of 28 European Union economies and 5 West Balkans economies over the period 1995-2018. The results based on PMG panel model point to weak fiscal sustainability with significant fiscal adjustments, in average 28.18% of deviations from equilibrium relationship are corrected in one year. Moreover, the research provides heterogeneous evidence of public expenditure adjustments to long-run equilibrium relationship in European Union and West Balkans economies. According to the results, candidates and potential candidates for European Union membership have improved their public finances, however, accession process does not lead to automatic convergence of these economies and fiscal sustainability assessment. [ABSTRACT FROM AUTHOR]

This paper assesses fiscal sustainability in 28 European Union economies in the period 1995-2018, using panel cointegration analysis for fiscal sustainability testing. The research is based on econometric framework of nonstationary, heterogeneous, and cross-sectional dependent panels, using robust Westerlund (2007) panel cointegration test, Mean Group, and Pooled Mean Group method of estimations. The results of cointegration analysis for EU-28 point to weak fiscal sustainability, with significant fiscal adjustment in average. However, heterogeneous coefficients show in which economies fiscal sustainability is achieved (whether it is strong or weak fiscal sustainability) and heterogeneous fiscal reactions. Robustness check confirmed existence of fiscal sustainability with heterogeneous fiscal adjustments in European Union economies, and indicated strong fiscal sustainability in the shorter period of time, namely after 1997 when Stability and Growth Pact is introduced. [ABSTRACT FROM AUTHOR]