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Regional Fiscal Overview. Anton Marcin č in Bratislava , April 07, 200 9 amarcincin FNSt. NMS are low revenues... GG Revenues are not high (perhaps with the exception of Hungary and Slovenia).

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Regional Fiscal Overview

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Regional fiscal overview

Regional Fiscal Overview

Anton Marcinčin

Bratislava, April 07, 2009


Nms are low revenues gg revenues are not high perhaps with the exception of hungary and slovenia

NMS are low revenues...GG Revenues are not high (perhaps with the exception of Hungary and Slovenia)

Regional fiscal overview

...and low expenditures countriesGG Expenditures are not high (with the exception of Hungary, and perhaps the Czech Republic and Slovenia)

Regional fiscal overview

with mostly pro-cyclical fiscal policiesGG balance differs from the surplus in Estonia to the high deficit in Hungary

Lower tax revenues

Lower tax revenues

Regional fiscal overview

and low labor taxesImplicit tax on labor is generally lower than in EU15 but in the Czech Republic, Hungary and Slovenia

Public indebtedness is very low but in hungary and perhaps also in poland

Public indebtedness is very lowbut in Hungary and perhaps also in Poland



  • Framework

    • Crisis and the spending mood

    • Falling revenues

  • Early data: this is not a temporary fall of demand

    • Expect public finance deterioration

    • Expect higher taxes

    • Call for another round of reforms

Deeper crisis more spending and more indebtedness

Deeper crisis, more spending(and more indebtedness)

  • The logic:

    • The economic slowdown or recession calls for interventions

    • Monetary policy does not work

    • Therefore, big emphasis on the fiscal policy

  • But there is a difference between wise fiscal policy and unwise (though popular) spending

    • Help domestic demand (1st pillar of European Economic Recovery Plan, EERP)

    • Does it supplement or contradict usual fiscal goals?

    • Moral hazard: someone will take over your problems

Fiscal policy as usual

Fiscal policy as usual

  • “Old-fashioned” goal: macroeconomic stability

    • Sustainable output growth

    • Sustainable public finances

    • External balance

    • Price stability – coordination with the monetary policy

  • “Old-fashioned” roles of fiscal policy – where the collective is preferred to the individual action

    • Justice and defense

    • Social affairs

    • Competition, fair business environment, let market work

  • Means: efficient and effective public finance management, public administration, structural reforms... (2nd pillar of EERP)

Popular fiscal policy

Popular fiscal policy

  • Reform fatigue, although the time for changes is now

  • Consumption subsidies are not means tested; risking lack of funds for real social programs

  • Expenditures: taking over problems of borrowers, low taxes, low social (and health) contributions, low profits of state owned enterprises... Moral hazard

Rational fiscal policy

Rational fiscal policy

  • This would be OK, if

    • the crisis was not too deep

    • the crisis would not last for too long

  • Instead, the fiscal policy should

    • help strengthening fundaments of the economy by improving business and living environments, starting with public sector reforms

    • improve and finance reasonable social safety net

The crisis will be deep and long

The crisis will be deep and long

  • Convergence programs of December 2008 are the history

  • GDP 4Q2008: slow down and recession, prospects for growth recovery are not good

  • Budget revenues

Convergence programs dec 2008

Convergence Programs (Dec.2008)

Ec jan 09 fiscal balance deterioration

EC (Jan’09): fiscal balance deterioration

Source: WB RER February 2009

4q2008 output contraction ecb feb 09 gdp growth in ea 3 2 to 2 2 in 2009 0 7 to 0 7 in 2010

4Q2008: output contractionECB (Feb’09): GDP growth in EA-3.2% to -2.2% in 2009-0.7% to 0.7% in 2010

Falling revenues cg budget slovakia of budgeted expenditures

Falling revenues: CG Budget Slovakia(% of budgeted expenditures)

Wb february 2009

WB February 2009

EU10 policymakers’ options are limited. Monetary easing is constrained in a number of countries, and almost all of these countries have little to no room for fiscal stimulus because of financing and budgetary constraints. Instead, governments will need to focus on other measures to stabilize the financial sector and on better quality of spending to deliver core services and provide safety nets to the most vulnerable within tight expenditure envelopes.



  • Calm fiscal policy

    • Get away from large subsidies of spending and wrong decisions

    • Concentrate on fundamentals

    • Reconsider how to use EU funds

  • Higher expenditures and lower revenues will result in higher deficits, more expensive debt and higher taxes in the future.

  • However, compared to the other EU countries, NMS may still maintain their comparative advantages

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