A Decade of Fiscal Transition
Transition literature has emphasized stabilization and enterprise restructuring. Both cross-country analyses and country-specific studies have tended to focus on fiscal stabilization and its indicators, highlighting the importance of quantitative f...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, D.C.
2013
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2002/05/1783727/decade-fiscal-transition http://hdl.handle.net/10986/14267 |
| Summary: | Transition literature has emphasized
stabilization and enterprise restructuring. Both
cross-country analyses and country-specific studies have
tended to focus on fiscal stabilization and its indicators,
highlighting the importance of quantitative fiscal
adjustment to stabilization outcomes. Less attention has
been paid to the qualitative dimensions of fiscal adjustment
in transition. The authors take stock of the extent to which
fiscal adjustment has occurred during the first decade of
transition in both qualitative and quantitative dimensions.
They define quality as the extent to which: (1) pro-growth
expenditure essential for creating future economic and
social assets are maintained; (2) pro-poor expenditure, such
as poverty-targeted transfers, necessary to ensure income
for the poor and vulnerable are adequately provided; and (3)
fiscal risks, impinging on both expenditure and revenue, are
managed through transition. The authors conclude that while
the quantitative magnitude of the fiscal adjustment was
dramatic, the quality of this adjustment has compromised the
social and economic objectives of transition, particularly
in the Commonwealth of Independent States (CIS). They draw
four main conclusions: Investments in public services fell
in both absolute and relative terms. Reduced spending on
government transfers contributed to a sharp increase in
income inequality in the CIS. Fiscal risks increased during
the transition. Initial conditions allowed Central European
and Baltic countries to maintain higher expenditures, which
may have contributed to their faster economic recovery and
political support for the reforms. The authors argue that
the challenge today for fiscal policy in these countries is
to facilitate the transition-particularly in reallocating
resources from large state-owned enterprises to new small
and medium-size firms, and providing priority public
services and targeted transfers to assist those adversely
affected by transition and reverse the deterioration in
social outcomes. The interplay between fiscal policies and
institutional arrangements is increasingly important as
transition economies embark on their second decade of
reforms. In particular, incentives embedded in the
institutional arrangements for fiscal management needs to be
strengthened so that policies, resources, and outcomes can
be better aligned, and the fiscal adjustment is consistent
with qualitative considerations. |
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