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

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  • Dennis P Botman
  • Anita Tuladhar

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.

Suggested Citation

  • Dennis P Botman & Anita Tuladhar, 2008. "Tax and Pension Reform in the Czech Republic—Implications for Growth and Debt Sustainability," IMF Working Papers 08/125, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:08/125
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    References listed on IDEAS

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    1. Thomas Dalsgaard, 2008. "Tax and Welfare Reforms in the Czech Republic—Structural Implications and Challenges," IMF Working Papers 08/52, International Monetary Fund.
    2. Manmohan S. Kumar & Dennis P Botman, 2007. "Global Aging Pressures; Impact of Fiscal Adjustment, Policy Cooperation, and Structural Reforms," IMF Working Papers 07/196, International Monetary Fund.
    3. Dirk V Muir & Douglas Laxton & Dennis P Botman & Andrei Romanov, 2006. "A New-Open-Economy Macro Model for Fiscal Policy Evaluation," IMF Working Papers 06/45, International Monetary Fund.
    4. 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.
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    More about this item

    Keywords

    Aging; Budget deficits; Debt sustainability; Czech Republic; Fiscal consolidation; Pensions; Population; Fiscal policy; Tax reforms; NOEM; tax reform; pension; retirement; retirement age; pension reform;

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