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Government Subsidies to Enterprises in Central and Eastern Europe: Budgetary Subsidies and Tax Arrears

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  • Schaffer, Mark E

Abstract

This paper analyses the distribution and allocation of budgetary subsidies and tax arrears in Central and Eastern Europe. Budgetary subsidies are relatively small in aggregate, highly sector specific, and the manufacturing sector receives few of them. Tax arrears, by contrast, are a significant problem, and the paper argues they can be considered a form of government subsidy. Data for the various Visegrád countries suggest that the total stock of tax arrears is on the order of 5- 10% of GDP, the annual flow of tax arrears is around 2% of GDP, and the annual flow of tax arrears to the manufacturing sector is around 1% of GDP. Survey data from Hungary and Poland show that tax arrears are concentrated in a small number of low profitability firms; the main correlate of tax arrears is low profitability; and the flow of new tax arrears is the main financing that enables these very unprofitable firms to continue to operate.

Suggested Citation

  • Schaffer, Mark E, 1995. "Government Subsidies to Enterprises in Central and Eastern Europe: Budgetary Subsidies and Tax Arrears," CEPR Discussion Papers 1144, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:1144
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    Citations

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    Cited by:

    1. Dittus, Peter, 1996. "Why East European banks don't want equity," European Economic Review, Elsevier, vol. 40(3-5), pages 655-662, April.
    2. Lubomir Dmitrov, 1999. "Budget Constraints of Bulgarian Enterprises, 1996-97," CERT Discussion Papers 9905, Centre for Economic Reform and Transformation, Heriot Watt University.
    3. Rumen Dobrinsky, 1996. "Enterprise restructuring and adjustment in the transition to market economy: lessons from the experience of Central and Eastern Europe," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 4(2), pages 389-410, October.
    4. Mark E. Schaffer, 1997. "Do Firms in Transition Economies have Soft Budget Constraints? A Reconsideration of the Concepts and Evidence," CERT Discussion Papers 9720, Centre for Economic Reform and Transformation, Heriot Watt University.
    5. Treier, Volker, 1999. "Unemployment in reforming countries: Causes, fiscal impacts and the success of transformation," BERG Working Paper Series 29, Bamberg University, Bamberg Economic Research Group.
    6. Milan Nikolic & Jacek Rostowski, 1995. "Exit in the Framework of Macro-economic Shocks and Policy Responses during Transition: a Cross-country Comparison," CASE Network Studies and Analyses 0056, CASE-Center for Social and Economic Research.
    7. R. Dobrinsky & N. Dochev & B. Nikolov, 1997. "Debt Workout and Enterprise Performance in Bulgaria:," CERT Discussion Papers 9715, Centre for Economic Reform and Transformation, Heriot Watt University.
    8. Daniel Munich & Jan Svejnar & Katherine Terrell, 2001. "Worker-firm Matching and Unemployment in Transition to a Market," Development and Comp Systems 0012011, EconWPA.
    9. 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.
    10. Schaffer, Mark E., 1998. "Do Firms in Transition Economies Have Soft Budget Constraints? A Reconsideration of Concepts and Evidence," Journal of Comparative Economics, Elsevier, vol. 26(1), pages 80-103, March.
    11. Ponomareva, Maria & Zhuravskaya, Ekaterina, 2004. "Federal Tax Arrears in Russia: Liquidity Problems, Federal Redistribution or Russian Resistance?," CEPR Discussion Papers 4267, C.E.P.R. Discussion Papers.
    12. Freinkman, Lev & Haney, Michael, 1997. "What affects the Russian regional governments'propensity to subsidize?," Policy Research Working Paper Series 1818, The World Bank.
    13. Jérôme Sgard, 1996. "Credit Crisis and the Role of Banks During Transition: a Five-Country Comparison," Working Papers 1996-08, CEPII research center.
    14. Irina Akimova & Gerhard Schwödiauer, 1999. "Restructuring of Ukrainian Enterprises after Privatization: Does Ownership Structure Matter?," Industrial Organization 9903003, EconWPA.
    15. Shumei Gao and Mark E. Schaffer & Shumei Gao and Mark E. Schaffer, 1998. "Financial Discipline in the Enterprise Sector in Transition Countries: How Does China Compare?," William Davidson Institute Working Papers Series 124, William Davidson Institute at the University of Michigan.
    16. repec:bla:jcmkts:v:55:y:2017:i:4:p:779-797 is not listed on IDEAS

    More about this item

    Keywords

    Central and Eastern Europe; Financial Distress; Subsidies; Tax Arrears;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H29 - Public Economics - - Taxation, Subsidies, and Revenue - - - Other
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • P43 - Economic Systems - - Other Economic Systems - - - Finance; Public Finance

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