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Tax Reform in Transition Economies: Experiences and Lessons

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Abstract

As the governments of countries in Eastern Europe and the former Soviet Union continue to grapple with the challenges of transition, many significant policy developments have already taken place over the past six years, developments of interest to policymakers and economists alike. Conditions in these Countries in Transition (CITs) have presented a formidable challenge to reformers, a challenge that has been met with bold, rapid action in some cases; timid, tepid response in others. Now, as CITs enter the seventh year of transition, perhaps lessons can be drawn from their experience which may be of value in the future to those countries that will, in time, be in transition from socialist to market-based economic systems.The goal of this paper is to review the transition experience in tax reform over the past six years, offer a preliminary evaluation of the impact of different approaches to tax reform, and extract lessons from the successes and failures of this experience. The rest of the paper is organized as follows. We start with a brief review of tax systems in socialist planned economies in Section 2, and then move on to an examination of the enduring legacy of tax systems under central planning in Section 3. Many of the failures, problems, and idiosyncrasies of the reform efforts during the transition can be traced to the past, when these tax systems started. In Section 4, we review the two general paradigms for reform that policymakers faced early on in the transition: the adoption wholesale of a western-type, modern tax system or a tax system adapted to transition economies. Many of the current problems in the fiscal arena can be partially attributed to the scope, pace, and stability of the reform process. In Section 5 we offer a short description of the evaluation and current structure of tax systems in CITs. In Section 6 we make a preliminary attempt to quantify the impact of different approaches to tax reform on economic performance of CITs. In Section 7, we summarize the lessons from tax reform in CITs. While no strategy could be comprehensive and infallible, there are lessons to extract from the concrete experiences, relatively better practices and mistakes of CITs for the remaining centrally-planned economies when they in turn embark upon comprehensive market reform.

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File URL: http://icepp.gsu.edu/sites/default/files/documents/icepp/wp/ispwp9706.pdf
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Bibliographic Info

Paper provided by International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University in its series International Center for Public Policy Working Paper Series, at AYSPS, GSU with number paper9706.

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Length: 41 pages
Date of creation: 01 Jul 1997
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Handle: RePEc:ays:ispwps:paper9706

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Keywords: Tax Reform; Transition Economies;

References

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  1. Kornai, Janos, 1992. "The Postsocialist Transition and the State: Reflections in the Light of Hungarian Fiscal Problems," American Economic Review, American Economic Association, vol. 82(2), pages 1-21, May.
  2. S. Nuri Erbas & Alan A. Tait, 1995. "Excess Wages Tax," IMF Working Papers 95/17, International Monetary Fund.
  3. repec:imf:imfpdp:9308 is not listed on IDEAS
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  5. Ickes, Barry W & Slemrod, Joel, 1992. "Tax Implementation Issues in the Transition from a Planned Economy," Public Finance = Finances publiques, , vol. 47(Supplemen), pages 384-99.
  6. Vito Tanzi & Parthasrathi Shome, 1993. "A Primer on Tax Evasion," IMF Working Papers 93/21, International Monetary Fund.
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  8. Emil M. Sunley & Victoria P. Summers, 1995. "An Analysis of Value-Added Taxes in Russia and Other Countries of the Former Soviet Union," IMF Working Papers 95/1, International Monetary Fund.
  9. Luca Barbone & Hana Polackova, 1996. "Public Finances and Economic Transition," CASE Network Studies and Analyses 0068, CASE-Center for Social and Economic Research.
  10. George Kopits, 1991. "Fiscal Reform in European Economies in Transition," IMF Working Papers 91/43, International Monetary Fund.
  11. Bird, Richard, 2010. "Taxation and Development," World Bank - Economic Premise, The World Bank, issue 34, pages 1-5, September.
  12. Stanley Fischer & Ratna Sahay & Carlos A. Vegh, 1996. "Stabilization and Growth in Transition Economies: The Early Experience," Journal of Economic Perspectives, American Economic Association, vol. 10(2), pages 45-66, Spring.
  13. Jorge Martinez-Vazquez & Robert McNab, 1997. "Tax Systems in Transition Economics," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper9701, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  14. Kornai, Janos, 1986. "The Soft Budget Constraint," Kyklos, Wiley Blackwell, vol. 39(1), pages 3-30.
  15. Bahl, Roy W. & Wallich, Christine, 1992. "Intergovernmental fiscal relations in China," Policy Research Working Paper Series 863, The World Bank.
  16. Go, Delfin S., 1994. "External shocks, adjustment policies and investment in a developing economy: Illustrations from a forward-looking CGE model of the Philippines," Journal of Development Economics, Elsevier, vol. 44(2), pages 229-261, August.
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  18. de Melo, Martha & Denizer, Cevdet & Gelb, Alan, 1996. "Patterns of Transition from Plan to Market," World Bank Economic Review, World Bank Group, vol. 10(3), pages 397-424, September.
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Citations

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Cited by:
  1. Jorge Martinez & Baoyun Qiao & Shuilin Wang & Heng-fu Zou, 2014. "An Essay on Public Finance in China," Annals of Economics and Finance, Society for AEF, vol. 15(1), pages 413-519, May.
  2. Jorge Martinez & Baoyun Qian & Shuilin Wang & Li Zhang & Heng-fu Zou, 2006. "Local Public Finance in China: Policy Options," CEMA Working Papers 554, China Economics and Management Academy, Central University of Finance and Economics.
  3. Jorge Martinez & Baoyun Qian & Shuilin Wang & Heng-fu Zou, 2006. "Local Public Finance in China: Challenges and Policy Options," CEMA Working Papers 549, China Economics and Management Academy, Central University of Finance and Economics.
  4. Jorge Martinez & Baoyun Qian & Shuilin Wang & Heng-fu Zou, 2006. "Local Public Finance in China: Expenditure Responsibilities of Local Governments," CEMA Working Papers 550, China Economics and Management Academy, Central University of Finance and Economics.
  5. Jorge Martinez & Baoyun Qian & Shuilin Wang & Heng-fu Zou, 2012. "A Treaties on Public Finance in China," CEMA Working Papers 555, China Economics and Management Academy, Central University of Finance and Economics.
  6. Jorge Martinez & Baoyun Qian & Shuilin Wang & Heng-fu Zou, 2006. "Local Public Finance in China: The performance of China's decentralization system," CEMA Working Papers 553, China Economics and Management Academy, Central University of Finance and Economics.
  7. Jorge Martinez & Baoyun Qian & Shuilin Wang & Heng-fu Zou, 2006. "Local Public Finance in China: Revenues of Local Governments," CEMA Working Papers 551, China Economics and Management Academy, Central University of Finance and Economics.
  8. Jorge Martinez & Baoyun Qian & Shuilin Wang & Heng-fu Zou, 2006. "Local Public Finance in China: Intergovernmental transfers," CEMA Working Papers 552, China Economics and Management Academy, Central University of Finance and Economics.

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