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Tax and Pension Reform in the Czech Republic-Implications for Growth and Debt Sustainability

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  • Dennis P. J. Botman
  • Anita Tuladhar
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    Abstract

    The Czech Republic has embarked on an ambitious tax reform and expenditure package to bring the deficit sustainably below 3 percent, and intends to reduce the deficit to 1 percent of GDP by 2012. To address the long-term fiscal challenge due to population aging, pension reform proposals are also being considered. In this paper we assess the macroeconomic effects of these measures using the Global Fiscal Model. The tax reform package will achieve a more efficient tax system. If implemented successfully with the intended expenditure savings measures, debt is projected to improve markedly while output would expand. Fiscal sustainability will not be restored, however, even if further measures to bring the deficit to 1 percent of GDP by 2012. Instead, raising the retirement age and prefunding future aging costs would be needed to keep debt below 60 percent of GDP through 2050.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/125.

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    Length: 25
    Date of creation: 01 May 2008
    Date of revision:
    Handle: RePEc:imf:imfwpa:08/125

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    Keywords: Aging; Debt sustainability; Fiscal consolidation; Tax reforms; Budget deficits; pension; tax reform; retirement; retirement age; pension reform; pensions; fiscal reform; tax rates; expenditure restraint; fiscal policy; government spending; fiscal sustainability; health care; private pension; tax base; labor income; expenditure reform; tax rate; public pension; public pension system; taxation; fiscal pressures; pension system; fiscal variables; pension benefits; labor force; fiscal balance; private pensions; fiscal burden; contribution rate; replacement rate; pension funds; tax system; tax policy; public finances; pension reforms; fiscal impact; long-term care; public pensions; dependency ratio; private pension funds; pension contributions; tax cuts; fiscal model; tax burden; social expenditure; tax increases; fiscal affairs department; tax adjustment; taxes on labor; tax on wages; government deficit; private savings; high tax burden; pension expenditure; fiscal position; fiscal surplus; fiscal effort; benefit payments; fiscal measures; income tax base; fiscal deficits; current pension; tax credit; future pension; fiscal issues; fiscal affairs; public spending; tax revenues; environmental taxes; fiscal performance; accumulated savings; pension plan; fiscal implications; pension reserve; increase in consumption; public pension scheme; fiscal policy actions; fiscal outlook; fiscal costs; pension expenditures; tax credits; budgetary flexibility; public expenditures; excessive deficit procedure; primary expenditure; pension reserves; fiscal structure; nominal wage; pension schemes; contribution base; fiscal adjustment; life expectancy; pension savings; contribution payments; fiscal reform program; fiscal deficit; investment returns;

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    1. Manmohan S. Kumar & Dennis P. J. Botman, 2007. "Global Aging Pressures," IMF Working Papers 07/196, International Monetary Fund.
    2. Alena Bicakova & Jiri Slacalek & Michal Slavik, 2006. "Fiscal Implications of Personal Tax Adjustments in the Czech Republic," Working Papers 2006/7, Czech National Bank, Research Department.
    3. Thomas Dalsgaard, 2008. "Tax and Welfare Reforms in the Czech Republic," IMF Working Papers 08/52, International Monetary Fund.
    4. Dirk Muir & Douglas Laxton & Dennis P. J. Botman & Andrei Romanov, 2006. "A New-Open-Economy Macro Model for Fiscal Policy Evaluation," IMF Working Papers 06/45, International Monetary Fund.
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