Fiscal Adjustments in Transition Economies Transfers and the Efficiency of Public Spending: A Comparison with OECD Countries

33 Pages Posted: 20 Apr 2016

See all articles by Barbara Fakin

Barbara Fakin

Independent

Alain de Crombrugghe

Facultés Universitaires Notre-Dame de la Paix (FUNDP) - Faculty of Economics, Management and Social Sciences

Date Written: March 1997

Abstract

Social security contributions and outlays in the economies of Central Europe do not differ much from those in the OECD countries, so experience in the OECD countries is relevant to them. The main problem: Loose eligibility criteria that allow too much pension money to go to early retirees. Despite a dramatic shift away from subsidies in the early years of transition, the countries of Central Europe still show signs of unsuccessful fiscal adjustment, insufficient deficit reduction, and loose spending policy. High social transfers and low efficiency of government spending remain two challenges of fiscal adjustment and long-term sustainability of budgetary policy choices. A cross-country regression analysis shows that the problems with high social-security outlays are largely the result of loose eligibility criteria (many pensions go to early retirees) under current state pay-as-you-go pension systems- not so much to old populations or high replacement rates. Fakin and de Crombrugghe suggest that transition economies should strive for a real social consensus on the reform of future pension rights. The transition to a funded pension system could be financed by a combination of: Government debt. Proceeds from privatization. Efficiency gains from lowering and/or restructuring government spending in favor of infrastructure, retraining, and market-oriented tertiary education. This paper - a joint product of the Office of the Senior Vice President, Development Economics and Chief Economist, and Research Support Staff - is part of Fiscal Reform in Poland (RPO 678-96), a study funded by the Bank's Research Support Budget.

Suggested Citation

Fakin, Barbara and de Crombrugghe, Alain, Fiscal Adjustments in Transition Economies Transfers and the Efficiency of Public Spending: A Comparison with OECD Countries (March 1997). Available at SSRN: https://ssrn.com/abstract=597204

Barbara Fakin

Independent ( email )

Alain De Crombrugghe (Contact Author)

Facultés Universitaires Notre-Dame de la Paix (FUNDP) - Faculty of Economics, Management and Social Sciences ( email )

Rempart de la Vierge 8
B-5000 Namur
Belgium