Field adjustments in transition economies : social transfers and the efficiency of public spending - a comparison with OECD countries

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 - and not so much to old populations or high replacement rates. The authors 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; and efficiency gains from lowering and/or restructuring government spending in favor of infrastructure, retraining, and market-oriented tertiary education.Environmental Economics&Policies,Banks&Banking Reform,Economic Theory&Research,Public Sector Economics&Finance,Payment Systems&Infrastructure,Economic Theory&Research,Environmental Economics&Policies,Public Sector Economics&Finance,Banks&Banking Reform,National Governance

Wage and employment effects of a wage norm : The Polish transition experience

Most transition countries used tax-supported wage norms in the early 1990's, as a part of their market liberalization programs. This paper analyses how a firm-level tax (or subsidy) on deviations from a pre-set wage norm may promote employment by rotating the labor demand curve perceived by the workers' union around the value of the norm. We derive the conditions such that it yields a positive employment effect. We test the effect of the norm on the wages on a sample of Polish firms in 1990 and 1991. The data support the role of the wage norm on the position of the perceived labor demand and the role of the tax rate on its slope.transition economies, labor market, unions, excess wage tax, employment

Wage and pension pressure on the Polish budget

After Poland's remarkable stabilization and liberalization in 1990, the economy faced three related problems: high wage and pension claims, a rising number of pensioners and unemployed workers, and a budget crisis, especially in 1991 and 1992. The author studies the role that wage and pension pressures played in this crisis. He also explains the persistence of the high tax wedge that later helped overcome the budget crisis. The positive effect on revenues of higher wages and higher tax rates could not compensate for both the inevitable loss in profit taxes and the excessive growth of spending on replacement income. Counterfactuals constructed for revenue and spending show the rising number of social benefit earners (pensions, unemployment) to be responsible for much of the budgetary burden. But they also show that the better protection of social income (over other income) explains part of the burden. Part of the employment loss and social spending can be ascribed to the excessive wage recovery of late 1990 and 1991. Insiders set wages ignoring the unemployed and exploiting the pension system in a context of uncertainty about profits and productivity, at a time when there was strong popular support for the protection of replacement income. The author recommends pension reform and caution about wages: the current economic recovery should create jobs, not raise wages, he says; and ensuring equitable opportunities for all requires moderating the income claims of the best-protected groups.Banks&Banking Reform,Environmental Economics&Policies,Economic Theory&Research,Municipal Financial Management,Labor Policies,Environmental Economics&Policies,Banks&Banking Reform,Public Sector Economics&Finance,Municipal Financial Management,Economic Theory&Research