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