The Nature of Fiscal Crisis in Transition Economies

Jaroslaw Bauc

No 74, CASE Network Studies and Analyses from CASE-Center for Social and Economic Research

Abstract: Fiscal stance is at the center of economic debate all over the post socialist countries. The most important issues that are more or less realized seem to be following. 1. To what extend will public sector budget deficits be monetized in the future i.e., do they eventually spell inflation?. 2. How can one reconcile the "twin deficits" i.e. the current account and budget deficit with the need for long run growth and the need for servicing the external debt. 3. Is it true, as argued by M. Friedman and R. Barro that the only relevant aspects of the budget are the volume and composition of public spendings on goods and services and that the choice of financing method is irrelevant? 4. Is a financial crowding out of private saving an issue of concern? 5. How do we assess the solvency of a government i.e. how do we evaluate the consistency of the government's spending and revenue plans with its outstanding debt obligations and its inflation objectives? 6. What are the structural and distributional effects of budget deficits? It is not easy to solve these or similar problems in mature developed market economies. Trying to answer to these questions with regards to transition economies appears to be very hard work. Specially if these problems are to be placed within the framework of fiscal crisis. Therefore it seems sensible to start the analysis with describing the nature of fiscal stance in post socialist countries and then use the concept as a background for further more detailed questions.

Keywords: economic transition; fiscal crisis; Central Eastern Europe (search for similar items in EconPapers)
Pages: 28 Pages
Date: 1996
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