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Wage and Pension Pressure on the Polish Budget


  • de Crombrugghe, Alain L


This 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.

Suggested Citation

  • de Crombrugghe, Alain L, 1997. "Wage and Pension Pressure on the Polish Budget," CEPR Discussion Papers 1767, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:1767

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    References listed on IDEAS

    1. Xavier Maret & Gerd Schwartz, 1993. "Poland; The Social Safety Net During the Transition," IMF Working Papers 93/42, International Monetary Fund.
    2. Newbery, David M G, 1995. "Tax and Benefit Reform in Central and Eastern Europe," CEPR Discussion Papers 1167, C.E.P.R. Discussion Papers.
    3. Coricelli, F. & Revenga, A., 1992. "Wage Policy During the Transition to a Market Economy: Poland 1990-91," World Bank - Discussion Papers _71, World Bank.
    4. Grootaert, Christiaan, 1995. "Poverty and social transfers in Poland," Policy Research Working Paper Series 1440, The World Bank.
    5. Fox, Louise, 1994. "Old age security in transitional economies," Policy Research Working Paper Series 1257, The World Bank.
    6. 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.
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    Cited by:

    1. Jacqueline Mazza, 2000. "Unemployment Insurance: Case Studies and Lessons for Latin America and the Caribbean," Research Department Publications 4192, Inter-American Development Bank, Research Department.
    2. Jacqueline Mazza, 2000. "Seguro de desempleo: estudios de casos individuales y enseñanzas para América Latina y el Caribe," Research Department Publications 4193, Inter-American Development Bank, Research Department.

    More about this item


    Budget Deficit; Pensions; Poland; Retirement; Transition; wage level;

    JEL classification:

    • 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


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