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Transition and the fiscal crisis in Central Europe

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  • Luca Barbone
  • Domenico Marchetti

Abstract

This paper argues that traditional explanations of the fiscal crisis in transition economies overlook the crucial interconnection between the reduction in subsidies expenditure and the decrease in profit tax revenues. It thus contends that the impact on the fiscal budget of the crisis of state-owned enterprises profitability has been largely overestimated in the literature. The net contribution to the government budget from the enterprise sector - defined as profit taxes net of cross-subsidization - has increased during the transition in Poland and Czechoslovakia, and has remained constant in Hungary. After reexamining the data, it is argued that - while it is undoubtable that the prospects for fiscal revenues are worrisome - the main determinant of the fiscal crisis is to the explosion of social security expenditures. The paper also assesses the applicability of these results to other former socialist economies.
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Suggested Citation

  • Luca Barbone & Domenico Marchetti, 1995. "Transition and the fiscal crisis in Central Europe," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 3(1), pages 59-74, March.
    • Handle: RePEc:bla:etrans:v:3:y:1995:i:1:p:59-74
    DOI: 10.1111/j.1468-0351.1995.tb00198.x
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    References listed on IDEAS

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    1. Mr. Xavier Maret & Mr. Gerd Schwartz, 1993. "Poland: The Social Safety Net During the Transition," IMF Working Papers 1993/042, International Monetary Fund.
    2. Barbone, Luca & Marchetti, Domenico Jr. & DEC, 1994. "Economic transformation and the fiscal crisis : a critical look at the Central European experience of the 1990s," Policy Research Working Paper Series 1286, The World Bank.
    3. Stanislaw Gomulka, 1994. "The financial situation of enterprises and its impact on monetary and fiscal policies, Poland 1992–93," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 2(2), pages 189-208, June.
    4. Mr. Vito Tanzi, 1991. "Tax Reform in Economies in Transition: A Brief Introduction to the Main Issues," IMF Working Papers 1991/023, International Monetary Fund.
    5. Pinto, Brian & Belka, Marek & Krajewski, Stefan, 1993. "Transforming state enterprises in Poland : macroeconomic evidence on adjustment," Policy Research Working Paper Series 1101, The World Bank.
    6. Eduardo Borensztein & Dimitri G. Demekas & Jonathan D. Ostry, 1993. "An Empirical Analysis of the Output Declines in Three Eastern European Countries," IMF Staff Papers, Palgrave Macmillan, vol. 40(1), pages 1-31, March.
    7. Bogetic, Zeljko & Hillman, Arye L., 1994. "The tax base in transition : the case of Bulgaria," Policy Research Working Paper Series 1267, The World Bank.
    8. Michael Bruno, 1992. "Stabilization and Reform in Eastern Europe: A Preliminary Evaluation," IMF Staff Papers, Palgrave Macmillan, vol. 39(4), pages 741-777, December.
    9. Mr. Michael Bruno, 1992. "Stabilization and Reform in Eastern Europe: A Preliminary Evaluation," IMF Working Papers 1992/030, International Monetary Fund.
    10. Mr. Vito Tanzi, 1993. "Fiscal Policy and the Economic Restructuring of Economies in Transition," IMF Working Papers 1993/022, International Monetary Fund.
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    Cited by:

    1. Fakin, Barbara & de Crombrugghe, Alain, 1997. "Field adjustments in transition economies : social transfers and the efficiency of public spending - a comparison with OECD countries," Policy Research Working Paper Series 1803, The World Bank.
    2. Malgorzata Antczak, 1996. "Income from the Privatisation of State Enterprises in Poland, Hungary and Czech Republic in 1991-1994," CASE Network Studies and Analyses 0080, CASE-Center for Social and Economic Research.
    3. Jacek Kochanowicz & Piotr Kozarzewski & Richard Woodward, 2005. "Understanding Reform: The Case of Poland," CASE Network Reports 0059, CASE-Center for Social and Economic Research.
    4. Marek Dabrowski, 1996. "Fiscal Crisis in the Transformation Period: Trends, Stylized Facts and Some Conceptual Problems," CASE Network Studies and Analyses 0072, CASE-Center for Social and Economic Research.
    5. Barbone, Luca & Polackova, Hana, 1996. "Public finances and economic transition," Policy Research Working Paper Series 1585, The World Bank.
    6. Denizer, Cevdet & Desai, Raj M. & Gueorguiev, Nikolay, 1998. "The political economy of financial repression in transition economies," Policy Research Working Paper Series 2030, The World Bank.
    7. V. Bárta, 1996. "Estimation of the Fiscal Stance in the Czech Republic during Transformation: Full Employment Budget Analysis," CERT Discussion Papers 9612, Centre for Economic Reform and Transformation, Heriot Watt University.
    8. Adela Deaconu & Dan Dacian Cuzdriorean, 2016. "Accounting and the state in post-communist Romania," African Journal of Accounting, Auditing and Finance, Inderscience Enterprises Ltd, vol. 5(1), pages 59-93.
    9. de Crombrugghe, Alain L, 1997. "Wage and Pension Pressure on the Polish Budget," CEPR Discussion Papers 1767, C.E.P.R. Discussion Papers.
    10. Lucjan T. Orlowski, 1996. "Fiscal Consolidation in Central Europe in Preparation for Accession to the European Union," CASE Network Studies and Analyses 0077, CASE-Center for Social and Economic Research.

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