©International Monetary Fund. Not for Redistribution - 2
I. Introduction Under socialist central planning, fiscal policy plays a passive role in the sense that government finances are entirely subordinate to the economic plan. Only when central planning is relaxed or dismantled, can fiscal instruments begin to make a distinct contribution to macro- economic stabilization, equity, and allocative efficiency. This evolving role of fiscal policy was evident in some European socialist countries already in the 1980s, even though most attempts at economic reform were still subject to rigid ideological constraints (one-party rule, state ownership of productive capacity, etc.). 1/ However, by 1990, with many of these countries—in particular, Czechoslovakia, the former German Democratic Republic (GDR), Hungary, and Poland — committed to full transformation to a market-oriented economy, rather than to a partially reformed halfway house, public sector reform moved to center stage. Drawing on some tentative lessons from the experience accumulated thus far, this paper focuses on fiscal reform in Central and East European countries, including the USSR, in the context of a comprehen- sive systemic transformation. Without pretending to provide an exhaus- tive or conclusive analysis, it presents an integrated treatment of major fiscal policy issues, that is both meaningful for the practitioner and useful for the analyst who can obtain only limited relevant guidance from existing theoretical work or from structural reforms pursued here- tofore in mixed economies. Following a discussion of the background of fiscal reform in European countries in transition, the paper examines key issues in the principal areas of public finance: taxation, subsidies, social security, public investment, public enterprises, government debt, and fiscal decentralization.
[Show full text]