Wage and Pension Pressure on the Polish Budget
AbstractThis paper studies the role of wage and pension pressures in explaining the budget deficit crisis of 1991–2 after the remarkable 1990 Polish economic stabilization and liberalization. It also explains the persistence of the high tax wedge that later helped overcome the budget crisis. The positive revenue effect of higher wages and higher tax rates could not compensate both the inevitable profit tax loss and the excessive growth of replacement income expenditure. Counterfactuals are constructed for revenue and expenditure. They show that the rising number of social benefit earners (pensions, unemployment) is responsible for a large part of the budgetary burden. Nevertheless, they also show that the better protection of social income compared to other income also explains part of the burden. Part of the employment loss and of the social expenditure can be ascribed to the excessive wage recovery of late 1990 and 1991. Insiders set wages ignoring the unemployed and exploiting the pension system in a context of uncertainty about profits and productivity and of strong popular support for the protection of replacement income.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1767.
Date of creation: Dec 1997
Date of revision:
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Other versions of this item:
- H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
- H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
- J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
- J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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