Fiscal Policy and Economic Growth: Lessons for Eastern Europe and Central Asia
Editors: Cheryl Gray, Tracey Lane, and Aristomene Varoudakis
July 2007
This book looks in-depth at public finance policies in ECA countries 15 years after the start of transition. The study aims to understand public finance policies and trends - including in the overall size of the public sector as well as specific patterns of taxation and public spending - across ECA. It explores how these policies and trends affect economic growth and benchmarks public finance policies and trends in ECA with those of other rapidly-growing emerging market countries. The report proposes structural reforms in areas where expenditure pressures are acute and suggests how to create fiscal space in other areas critical for growth. Finally, the authors explore ways to improve the efficiency and enhance the impact on employment and growth of tax systems in ECA.
1. Fiscal Policy and Economic Growth in Europe and Central Asia: An Overview
This study illustrates the many challenges and trade-offs that policymakers face when trying to formulate public finance policies. Each sector and topic involves complex issues affecting many citizens. Yet, worldwide experience offers lessons, analyzed here, for formulating public finance policies that will promote economic growth while meeting the need for fundamental public goods.
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ГЛАВА 1 [pdf: 513kB]
2. Public Finance Systems in Transition Countries
Are there links between patterns of growth and public finance policies in ECA countries? This chapter examines fiscal patterns in the ECA region over the period 1995 to 2005.
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3. Do Public Finance Systems Matter for Growth?
This chapter explores four possible links between public finance policies and growth: (a) the effects of budget deficits and fiscal consolidation on growth; (b) the impact of the size of government on growth; (c) links with the quality of governance; and (d) the influence of the composition of expenditures and taxes on growth.
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4. Infrastructure
This chapter looks at trends and issues in the main sectors of economic infrastructure — power, water, and transport (railways and roads) — and their implications for the ECA region’s prospects for continued growth and fiscal sustainability.
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5. Education
Further reforms in education policy and in resulting patterns of public education spending are needed to improve education outcomes and foster continued economic growth. Although details vary from country to country, the general direction of needed reforms is similar across the ECA region.
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6. Health
This chapter addresses the relationship between health spending and economic growth and describes current patterns of health care financing and spending, the prevailing funding models for health care, and the relationship of these variables to health outcomes. It considers the influence of efficiency and governance on the link between public spending and health outcomes. Finally, it identifies some of the challenges that ECA countries face in the health arena and draws lessons from international experience.
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7. Pensions
This chapter reviews the fiscal implications of pension systems in ECA and suggests paths for reform to balance fiscal needs with social protection and poverty reduction among the elderly.
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8. Flat Income Tax Reforms
This chapter explores the experience of ECA countries in undertaking flat tax reforms and the effects of such reforms in three areas: (a) revenue collection, (b) tax structure, and (c) tax compliance.
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9. Taxation of Labor
This chapter finds that the tax wedge on labor in ECA is indeed relatively high from an international perspective and confirms that high labor taxes have a negative impact on employment. The study recommends two main ways to limit the negative impact of the tax wedge on employment: lower social security contributions and target tax reductions to low-skilled workers and youth.
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