Ondřej Schneider, Jan Zápal Charles University

Fiscal Reforms in the New Fiscal Reforms in the New Members StatesMembers States

Seminář Seminář strategie hospodářské politiky strategie hospodářské politiky a udržitelnost veřejných financía udržitelnost veřejných financíSmilovice, 2.- 4. května 2005Smilovice, 2.- 4. května 2005

Ondřej Schneider, Jan ZápalOndřej Schneider, Jan ZápalCharles UniversityCharles University

Ondřej Schneider and Jan Zápal, May 2005Ondřej Schneider and Jan Zápal, May 2005 22

OutlineOutline I. HypothesisI. Hypothesis

• 2 groups of countries2 groups of countries II. EvidenceII. Evidence

• Basic factsBasic facts• Reform effortsReform efforts• Evidence from PEPs & CoPrsEvidence from PEPs & CoPrs• SustainabilitySustainability• ConsolidationsConsolidations

III. ConclusionIII. Conclusion

I. HypothesisI. Hypothesis


I. HypothesisI. Hypothesis 2 groups of countries?2 groups of countries?

• Large government (46-52% of GDP)Large government (46-52% of GDP)Cyprus, Czech Republic, Hungary,Cyprus, Czech Republic, Hungary,Malta, Poland, SloveniaMalta, Poland, Slovenia

• Small(ish) government (36-38% of GDP)Small(ish) government (36-38% of GDP)Estonia, Latvia, Lithuania,Estonia, Latvia, Lithuania,Slovakia (since 2003)Slovakia (since 2003)


Large governmentLarge government

General government expenditure in % of GDP

35

40

45

50

55

1999 2000 2001 2002 2003 2004 2005 2006

EUR-15 CY CZ HU MT PL SI


Small(ish) governmentSmall(ish) government

General government expenditure in % of GDP

30

35

40

45

50

55

60

1999 2000 2001 2002 2003 2004 2005 2006

EUR-15 EE LV LT SK


I. HypothesisI. Hypothesis 2 groups of countries?2 groups of countries?

• in the breach of SGP – in the breach of SGP – Excessive deficit procedure (EDP)Excessive deficit procedure (EDP)Cyprus, Czech Republic, Hungary, Malta, Cyprus, Czech Republic, Hungary, Malta, Poland, SlovakiaPoland, Slovakia

• compliant with SGP (non EDP)compliant with SGP (non EDP)Estonia, Latvia, Lithuania, SloveniaEstonia, Latvia, Lithuania, Slovenia


EDPEDP

General government budget deficit in % of GDP

-14

-12

-10

-8

-6

-4

-2

0

2

1999 2000 2001 2002 2003 2004 2005 2006

EUR-15 CY CZ HU MT PL SK


non EDPnon EDP

General government budget deficit in % of GDP

-6

-4

-2

0

2

4

1999 2000 2001 2002 2003 2004 2005 2006

EUR-15 EE LV LT SI


HypothesisHypothesis Grouping very robust:Grouping very robust:

• The „bad“ always are: Cyprus, Czech The „bad“ always are: Cyprus, Czech Republic, Hungary, Malta, PolandRepublic, Hungary, Malta, Poland

• The „good“ always are: Estonia, Latvia, The „good“ always are: Estonia, Latvia, LithuaniaLithuania

• Only Slovenia manages big government Only Slovenia manages big government and low debtand low debt

• Only Slovakia manageOnly Slovakia managedd to cut government to cut government expenditures massively (but runs deficit)expenditures massively (but runs deficit)

II. EvidenceII. Evidence


Basic factsBasic facts Indirect Indirect ttaxesaxes Direct taxesDirect taxes

% of GDP % of GDP

12

13

14

15

1994 1996 1998 2000 2002 2004 2006 2008

EDP countries non EDP countries EUR-15

7

9

11

13

15

1994 1996 1998 2000 2002 2004 2006 2008



Basic factsBasic facts Social contributionsSocial contributions

% of GDP

10

12

14

16

1994 1996 1998 2000 2002 2004 2006 2008



Basic factsBasic facts Employees’ Employees’

compensationcompensation Collective Collective

consumptionconsumption

% of GDP % of GDP

9

10

11

12

13

1994 1996 1998 2000 2002 2004 2006 2008


8

9

10

11

12

1994 1996 1998 2000 2002 2004 2006 2008



Basic factsBasic facts Social transfersSocial transfers InvestmentInvestment

% of GDP % of GDP

2

3

4

5

1994 1996 1998 2000 2002 2004 2006 2008


20

22

24

26

28

30

1994 1996 1998 2000 2002 2004 2006 2008



Evidence from PEPs & CoPrsEvidence from PEPs & CoPrs Pre-Accession Economic Programme Pre-Accession Economic Programme

(PEP)(PEP)• 20012001• 20022002• 20032003

Convergence ProgrammeConvergence Programme(CoPr)(CoPr)• Spring Spring 20042004• Autumn Autumn 20042004


PEP 01

PEP 02

PEP 03

CoPr - spring 04CoPr - autumn 04

-12

-10

-8

-6

-4

-2

02000 2001 2002 2003 2004 2005 2006 2007 2008

PEP 01 PEP 02 PEP 03 CoPr - spring 04 CoPr - autumn 04

Evidence from PEPs & CoPrsEvidence from PEPs & CoPrs

Malta, General government budget deficit in % of GDP


-12

-10

-8

-6

-4

-2

02000 2001 2002 2003 2004 2005 2006 2007 2008

PEP 01 PEP 02 PEP 03 CoPr - spring 04 CoPr - autumn 04

Evidence from PEPs & CoPrsEvidence from PEPs & CoPrs

Revisions

Increased speed

Malta, General government budget deficit in % of GDP


SustainabilitySustainability Benchmark primary deficitBenchmark primary deficit

((rr--yy))..bb• rr ... real interest rate ... real interest rate• yy ... real growth of output ... real growth of output• bb ... debt to GDP ratio ... debt to GDP ratio

Actual primary deficit based on 2000-2004Actual primary deficit based on 2000-2004

Sustainability gapSustainability gap as a difference as a difference


SustainabilitySustainability

-6

-5

-4

-3

-2

-1

0

1

2

Unsu

stai

nabl

e / S

usta

inab

le

Sustainability gap, 2000-2004 data

% of GDP


Growth accountingGrowth accounting

Growth effect

Monetary policyeffect

Net fiscal effort

Observed reduction of deficit Composition of reduction

Ondřej Schneider and Jan Zápal, May 2005Ondřej Schneider and Jan Zápal, May 2005 2222-1,5

-1

-0,5

0

0,5

1Growth accountingGrowth accountingRe

stric

tive

/ Exp

ansio

nary

Net fiscal effort, 2000-2004 data

% of GDP


ConsolidationsConsolidations Definition of consolidationDefinition of consolidation

Successful

Not successful

t t + 1 t + 2 t + 3 t + 4

1 % of GDP in initial year

General government primary budget deficit in % of GDP


ConsolidationsConsolidations

-0,52-0,52-0,16-0,16-0,54-0,54-0,44-0,44-0,50-0,50-4,50-4,500,140,144,624,62Not

Not

succ

essf

ulsu

cces

sful

-0,30-0,30-0,25-0,25-1,58-1,58-1,85-1,85-1,50-1,50-7,70-7,70-2,20-2,205,455,45

Succ

essf

ulSu

cces

sful

Inve

stm

ent

Inve

stm

ent

Subs

idie

sSu

bsid

ies

Socia

l So

cial

trans

fers

trans

fers

Empl

oyee

s’ Em

ploy

ees’

com

pens

atio

nco

mpe

nsat

ion

Colle

ctiv

e Co

llect

ive

cons

umpt

ion

cons

umpt

ion

Tota

l To

tal

expe

nditu

reex

pend

iture

Tota

l To

tal

reve

nue

reve

nue

Defic

it De

ficit

redu

ctio

nre

duct

ion

% of GDP


-0,52-0,52-0,16-0,16-0,54-0,54-0,44-0,44-0,50-0,50-4,50-4,500,140,144,624,62Not

Not

succ

essf

ulsu

cces

sful

-0,30-0,30-0,25-0,25-1,58-1,58-1,85-1,85-1,50-1,50-7,70-7,70-2,20-2,205,455,45

Succ

essf

ulSu

cces

sful

Inve

stm

ent

Inve

stm

ent

Subs

idie

sSu

bsid

ies

Socia

l So

cial

trans

fers

trans

fers

Empl

oyee

s’ Em

ploy

ees’

com

pens

atio

nco

mpe

nsat

ion

Colle

ctiv

e Co

llect

ive

cons

umpt

ion

cons

umpt

ion

Tota

l To

tal

expe

nditu

reex

pend

iture

Tota

l To

tal

reve

nue

reve

nue

Defic

it De

ficit

redu

ctio

nre

duct

ion

Successful consolidations reduce Successful consolidations reduce deficit moredeficit more


% of GDP



-0,52-0,52-0,16-0,16-0,54-0,54-0,44-0,44-0,50-0,50-4,50-4,500,140,144,624,62Not

Not

succ

essf

ulsu

cces

sful

-0,30-0,30-0,25-0,25-1,58-1,58-1,85-1,85-1,50-1,50-7,70-7,70-2,20-2,205,455,45

Succ

essf

ulSu

cces

sful

Inve

stm

ent

Inve

stm

ent

Subs

idie

sSu

bsid

ies

Socia

l So

cial

trans

fers

trans

fers

Empl

oyee

s’ Em

ploy

ees’

com

pens

atio

nco

mpe

nsat

ion

Colle

ctiv

e Co

llect

ive

cons

umpt

ion

cons

umpt

ion

Tota

l To

tal

expe

nditu

reex

pend

iture

Tota

l To

tal

reve

nue

reve

nue

Defic

it De

ficit

redu

ctio

nre

duct

ion

Successful consolidations Successful consolidations do not rely on revenue do not rely on revenue increasesincreases

% of GDP



-0,52-0,52-0,16-0,16-0,54-0,54-0,44-0,44-0,50-0,50-4,50-4,500,140,144,624,62Not

Not

succ

essf

ulsu

cces

sful

-0,30-0,30-0,25-0,25-1,58-1,58-1,85-1,85-1,50-1,50-7,70-7,70-2,20-2,205,455,45

Succ

essf

ulSu

cces

sful

Inve

stm

ent

Inve

stm

ent

Subs

idie

sSu

bsid

ies

Socia

l So

cial

trans

fers

trans

fers

Empl

oyee

s’ Em

ploy

ees’

com

pens

atio

nco

mpe

nsat

ion

Colle

ctiv

e Co

llect

ive

cons

umpt

ion

cons

umpt

ion

Tota

l To

tal

expe

nditu

reex

pend

iture

Tota

l To

tal

reve

nue

reve

nue

Defic

it De

ficit

redu

ctio

nre

duct

ion

Successful Successful consolidations rely on consolidations rely on expenditure cutsexpenditure cuts

% of GDP


-0,52-0,52-0,16-0,16-0,54-0,54-0,44-0,44-0,50-0,50-4,50-4,500,140,144,624,62Not

Not

succ

essf

ulsu

cces

sful

-0,30-0,30-0,25-0,25-1,58-1,58-1,85-1,85-1,50-1,50-7,70-7,70-2,20-2,205,455,45

Succ

essf

ulSu

cces

sful

Inve

stm

ent

Inve

stm

ent

Subs

idie

sSu

bsid

ies

Socia

l So

cial

trans

fers

trans

fers

Empl

oyee

s’ Em

ploy

ees’

com

pens

atio

nco

mpe

nsat

ion

Colle

ctiv

e Co

llect

ive

cons

umpt

ion

cons

umpt

ion

Tota

l To

tal

expe

nditu

reex

pend

iture

Tota

l To

tal

reve

nue

reve

nue

Defic

it De

ficit

redu

ctio

nre

duct

ion

Successful Successful consolidationconsolidation

s rely on s rely on painful painful

expenditure expenditure cutscuts


% of GDP


-0,52-0,52-0,16-0,16-0,54-0,54-0,44-0,44-0,50-0,50-4,50-4,500,140,144,624,62Not

Not

succ

essf

ulsu

cces

sful

-0,30-0,30-0,25-0,25-1,58-1,58-1,85-1,85-1,50-1,50-7,70-7,70-2,20-2,205,455,45

Succ

essf

ulSu

cces

sful

Inve

stm

ent

Inve

stm

ent

Subs

idie

sSu

bsid

ies

Socia

l So

cial

trans

fers

trans

fers

Empl

oyee

s’ Em

ploy

ees’

com

pens

atio

nco

mpe

nsat

ion

Colle

ctiv

e Co

llect

ive

cons

umpt

ion

cons

umpt

ion

Tota

l To

tal

expe

nditu

reex

pend

iture

Tota

l To

tal

reve

nue

reve

nue

Defic

it De

ficit

redu

ctio

nre

duct

ion

... and less on investment... and less on investment


% of GDP


Planned consolidationsPlanned consolidations

--11,,2727--33,,535311,,75755,285,28Consolidations Consolidations

post EU post EU accession - accession -

plannedplanned

--00,8,844--55,,4141--00,,535344,,8686Consolidations Consolidations

pre EU pre EU accession - accession -

realizedrealized

Employees’ Employees’ compensationcompensation

Total Total expenditureexpenditure

Total Total revenuerevenue

Deficit Deficit reductionreduction

% of GDP





plannedplanned



realizedrealized





Post EU accession Post EU accession consolidations aim consolidations aim for deeper deficit for deeper deficit reductionreduction

% of GDP





plannedplanned



realizedrealized




Deficit Deficit reductionreduction Post EU Post EU

accession accession consolidations consolidations rely heavily on rely heavily on revenue revenue increasesincreases

% of GDP




plannedplanned



realizedrealized




Deficit Deficit reductionreduction Post EU Post EU

accession accession consolidations consolidations

rely less on rely less on expenditure expenditure

cutscuts


% of GDP




plannedplanned



realizedrealized





... ... but bureaucrats will but bureaucrats will not be happynot be happy


% of GDP


Reform effortsReform efforts NMS differ in their reform effortsNMS differ in their reform efforts Main reforms: pensions, health care, tax, Main reforms: pensions, health care, tax,

fiscal decentralisation, budgetary rules and fiscal decentralisation, budgetary rules and proceduresprocedures

Most reform minded: Estonia, SlovakiaMost reform minded: Estonia, Slovakia

Almost no reforms: Hungary, Czech RepublicAlmost no reforms: Hungary, Czech Republic


Reform effortsReform efforts Pension system reformsPension system reforms

19991999PolandPoland

20052005SlovakiaSlovakia20002000SloveniaSlovenia

--MaltaMalta19981998HungaryHungary20042004LithuaniaLithuania20012001LatviaLatvia20022002EstoniaEstonia--Czech RepublicCzech Republic--CyprusCyprus2. pillar introduction 2. pillar introduction

III. ConclusionIII. Conclusion


Ranking fiscal policiesRanking fiscal policies 14 criteria14 criteria

• Reform effortsReform efforts• Consolidation successConsolidation success• Sustainability gapSustainability gap• Dependency ratiosDependency ratios• EDPEDP• RevisionsRevisions• ... etc.... etc.


Ranking fiscal policiesRanking fiscal policiesSub-index no.1Sub-index no.1

Reform effortsReform efforts Pension reformPension reform Health care Health care

reformreform Fiscal stanceFiscal stance ConsolidationConsolidation

RankRankSlovakiaSlovakia 1010EstoniaEstonia 99SloveniaSlovenia 88LatviaLatvia 77MaltaMalta 66LithuaniaLithuania 55PolandPoland 44CyprusCyprus 33HungaryHungary 22Czech Czech RepublicRepublic

11



Ageing impactAgeing impact Dependency Dependency

ratioratio FertilityFertility Room to rise taxRoom to rise tax DiscretionDiscretion

RankRankEstoniaEstonia 1010CyprusCyprus 99SlovakiaSlovakia 88LatviaLatvia 77LithuaniaLithuania 66HungaryHungary 55PolandPoland 44SloveniaSlovenia 33MaltaMalta 22Czech Czech RepublicRepublic

11



Fiscal functionsFiscal functions StabilizationStabilization Fiscal stanceFiscal stance ConsolidationConsolidation

RankRankMaltaMalta 99EstoniaEstonia 99SlovakiaSlovakia 88SloveniaSlovenia 77LithuaniaLithuania 66CyprusCyprus 44LatviaLatvia 44PolandPoland 33Czech Czech RepublicRepublic

22

HungaryHungary 11



Past behaviorPast behavior EDPEDP RevisionsRevisions SpeedSpeed SustainabilitySustainability Fiscal stanceFiscal stance StabilizationsStabilizations

RankRankEstoniaEstonia 1010LatviaLatvia 77LithuaniaLithuania 77SloveniaSlovenia 77SlovakiaSlovakia 66CyprusCyprus 55HungaryHungary 44MaltaMalta 33PolandPoland 22Czech Czech RepublicRepublic

11


Ranking fiscal policiesRanking fiscal policiesOVERALL INDEXOVERALL INDEX RankRankEstoniaEstonia 1010SlovakiaSlovakia 99LatviaLatvia 88LithuaniaLithuania 77CyprusCyprus 66SloveniaSlovenia 55PolandPoland 44HungaryHungary 33MaltaMalta 22Czech RepublicCzech Republic 11

Thank You for Your Thank You for Your attentionattention

We welcome any commentWe welcome any comment

Date post:	19-Mar-2016
Category:	Documents
Upload:	zanthe
View:	18 times
Download:	0 times

Ondřej Schneider, Jan Zápal Charles University

Documents