Why has the crisis been bad for private pensions, but good for the flat tax? The sustainability of ‘neoliberal’ reforms in the new EU member states
This paper examines two questions related to the sustainability of the major neoliberal, economic and social reforms in the new EU member states, namely the flat income tax and private pension pillars. First, we look at the relationship between the political consensus/controversy at the time major policy reforms were passed and the future sustainability of these reforms after a change of government. Second, we explore what we call a paradox of reverse sustainability, whereby the flat income tax has been more politically resilient during the global financial and economic crisis than private pensions, even though ex ante expectations and the literature would lead us to expect the opposite. The paper shows that controversy at the time the reforms were passed had no effect on subsequent sustainability, and the levels of partisanship and public support with regard to a specific reform seem less important than the political costs and benefits. We also find that despite their apparent neoliberal bent, the two policies are versatile enough to be shaped towards a variety of policy goals, allowing their introduction and retention in a variety of economic and social circumstances. In other words, even though private pensions and particularly the flat tax have powerful political connotations, they are by no means policy straitjackets. While both reforms could sustain themselves throughout the ‘good’ times before the global crisis, their fates diverged during the crisis. Neither public support nor the large constituency of savers could fully protect private pensions from a policy reversal during a period of exceptional fiscal pressure. That is because a reversal was associated with significant, short-term fiscal gains and the states where these reversals took place also took a range of other decisions that were politically extraordinarily difficult. On the other hand, we demonstrate that the introduction or potential reversal of the flat tax was not associated with significant, short-term revenue gains. It is the relatively ‘cheap’ nature of the flat tax that distinguishes it from private pensions, because it sends a highly cost-effective signal in terms of revenues lost owing to its existence.
|Date of creation:||Oct 2011|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (+322) 229-39-11
Fax: (+322) 229-39-71
Web page: http://www.ceps.eu
More information through EDIRC
References listed on IDEAS
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.:
- Andras Simonovits, 2009. "Hungarian Pension System and its Reform," IEHAS Discussion Papers 0908, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
- John Ashworth & Bruno Heyndels, 2001. "Political Fragmentation and the Evolution of National Tax Structures in the OECD," International Tax and Public Finance, Springer, vol. 8(4), pages 377-393, August.
- Henning Bohn & Charles Stuart, 2003. "Voting and Nonlinear Taxes in a Stylized Representative Democracy," CESifo Working Paper Series 1058, CESifo Group Munich.
- André Sapir, 2006.
"Globalization and the reform of European social models,"
ULB Institutional Repository
2013/167139, ULB -- Universite Libre de Bruxelles.
- André Sapir, 2006. "Globalization and the Reform of European Social Models," Journal of Common Market Studies, Wiley Blackwell, vol. 44(2), pages 369-390, 06.
- André Sapir, 2006. "Globalisation and the reform of European social models," ULB Institutional Repository 2013/8112, ULB -- Universite Libre de Bruxelles.
- AndrÃ© Sapir, 2005. "Globalisation and the reform of European social models," Policy Contributions 31, Bruegel.
- Wyplosz, Charles, 1992.
"After the Honeymoon: On the Economics and the Politics of Economic Transformation,"
CEPR Discussion Papers
734, C.E.P.R. Discussion Papers.
- Wyplosz, Charles, 1993. "After the honeymoon: On the economics and the politics of economic transformation," European Economic Review, Elsevier, vol. 37(2-3), pages 379-386, April.
- Fernandez, Raquel & Rodrik, Dani, 1991. "Resistance to Reform: Status Quo Bias in the Presence of Individual-Specific Uncertainty," American Economic Review, American Economic Association, vol. 81(5), pages 1146-55, December.
- Paola Profeta, 2007. "Political support and tax reforms with an application to Italy," Public Choice, Springer, vol. 131(1), pages 141-155, April.
- Hetzel, Robert L., 1990. "Central banks' independence in historical perspective : A review essay," Journal of Monetary Economics, Elsevier, vol. 25(1), pages 165-176, January.
- Ferrera, Maurizio & Hemerijck, Anton & Rhodes, Martin, 2000. "Recasting European Welfare States for the 21st Century," European Review, Cambridge University Press, vol. 8(03), pages 427-446, July.
- Mathias Dewatripont, 1992.
"Economic Reform and Dynamic Political Constraints,"
ULB Institutional Repository
2013/175991, ULB -- Universite Libre de Bruxelles.
When requesting a correction, please mention this item's handle: RePEc:eps:cepswp:6313. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Margarita Minkova)
If references are entirely missing, you can add them using this form.