Fiscal Policy during Transformation Period
Czech Case
2nd Lecture Transformation of the Public Sector
	Content of Lecture
1.	Fiscal Policy Strategy 1993 (Klaus)
2.	Fiscal Policy Strategy 1997 (Tošovský)
3.	Fiscal Policy Strategy 1998 (Zeman)
4.	Fiscal Policy Strategy 2002 (Špidla)
5.	Discussion 2
Fiscal Policy - definition
Government macroeconomic policy aimed at affecting state economy through public budgets.
Possible instruments:
■  reduction/increase of government expenditur
■  reduction/increase of taxes or government
Fiscal expansion
increase or government
consumption or governmen
ses of goods and services)
reduction or taxes (visit le
Fiscal restriction - opposite of expansion.
Instruments of fiscal policy
	Fiscal expansion	Fiscal restriction
Direct instruments		
Indirect instruments	|^|	g
budgetary derlei
^iscal restriction —> budgetary surplus.
Graphs: Trends in government deficit, expenditure and revenue (per cent of GDP)
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Basic Phases of Czech Fiscal Policy	
i.    1993-	-1998 „conservative" fiscal policy
aim	- to achieve balanced public budgets
	- to reduce role for the state in the
	economy;
2.     1998-	- 2002 „neokeynesian" fiscal policy
aim	- to achieve sufficient growth of GDP
	in spite of budget deficits
	- to strengthen role for the state in the
	economy. 7
Graph: Fiscal Developments 1993 - 2002.																						
																						
	4 5 g     3-5 3     3.0 4^     2.5 I  2-° "S      1.5 I     1° 0.5 0.0	34 P																			-  2a 24 20    g -12    1 .it -s    ž -  4	
		23.9         —																				
		r n																				
		_        17.8													17 ■	Y						
		"~m05-6                    ,..,   15.1 ^																—				
																						
		^"m      u     m																				
																						
																						
																						
		■																				
	1993     1994     1995    1996    1997     1998     1999    2000    2001    2002 ^^™   Bud g e;:       ľefici:       : -e;^: ve           M      Public debt <right hand scale) number indicates surplus) Source: Czech Nations  Bank  based on the IMF's GFE aDuroach.																					
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Form of fiscal policy	
The form of fiscal policy is	influenced by values of
political parties coalition	that can reach the
majority in Parliament.	
Right wing political parties	- based on idea of free
market, come out of neo	-liberal theories.
Left wing political parties -	based on idea of
solidarity, come out of social-democratic theory. 10	
„Narrow" vs. „wide" conception of Czech public finance
narrow conception -used 1993-1997
- included only state budget and municipal budgets
wide conception
- used 1998 - nowadays
- included state budget, municipal budgets, extra-budgetary funds, budget of health insurance system, state financial assets and debts.
Fiscal position of CR in 1993
CR was given as an example of a good fiscal position to the other transitive economics.
Reasons:
budgets had no deficits,
- the value of public debt was low, tax burden had gone down.
This position was partially supported by a non-transparent system of transformation institutions and extra-budeetarv funds.
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Fiscal Policy Strategy 1993 (Klaus)
Fiscal Policy Strategy 1993 (Klaus)
Václav Klaus
_ Neoclassic economist Connected with right wing political party ODS
Prime Minister — o_1997
'iyy / — abdication because of problems in political
establishing a legist framework compa: market economies
d technical that in modern
privatization as the cornerstone of the Czech transition to market economy
explicit fiscal target —> no increase in the nominal state debt —> decrease as a ratio to GDP (see graph")
Fiscal Policy Strategy 1993 (Klaus)
debate about establishing a legislative requirement for balanced state budgets —> not accepted by the Parliament
a new tax system (1993) based on a neutrality, equity, and simplicity
expenditure restrictions '97, '98 ("packets") restrictive fiscal policy
Fiscal Policy Strategy 1997 (Tošovský)
Josef Tošovský - Prime Minister in IS and after - Governor of Czech Natior nowadays - head of Swiss Financial S Institute
non-political government, „officers" short term (17. 12. 1997 - 22. 7. 1998) more transparency in fiscal flows no further expenditures restricts neutral fiscal policy
Fiscal Policy Strategy 1998 (Zeman)
J social democrat government
i original fiscal policy target —> maintenance of balanced public finances, BUT the government openly opted for promoting economic growth bv means of public budget deficits fsee graph")
priorities in housing, education, infrastructure investment (highway D 47?)
public expenditure growth —> structural deficit
Fiscal Policy Strategy 1998 (Zeman)
problem - mandatory expenditures -predetermined structure of state budge
some specií
etary institutions (e.i.
extra-budgetary funds) were established to carry out public investments in certain areas —> further fragmentation of government budget
expansive fiscal policy
Fiscal Policy Strategy 2002 (Špidla)		
	^^^^	Vladimír Špidla
		■ Connected with left wing
		political party CSSD
	m"       '  1	■ Prime Minister 2002 - 2004
	i Á	■  2004 — abdication because of problems in his political party ■  Nowadays - EU
	«\	Commissioner for Employment, Social Affairs and Equal Opportunities. 20
Fiscal Policy Strategy 2002 (Špidla)
Public sector balance and the Maastricht criteria
another social democrat government continued public expenditure growth, decrease of public revenues
continued growth or public deb
attempt of restrictive fiscal policy - suggestion of Public Budgets Reform (connected with entrance of the CR to the EU in May 2004 -
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■         ■         ■        ■         ■         - ~ "   -^   --2-8-*-	
Maastricht limit	-3bN
	
1993    1994    1995    1996    1997 Source: Caech Nationa Bank.
2000    2001    2002
Public debt and the Maastricht criteria
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23.8      24.9				
|  19.2	17-8      1ft R      13.6      13 5	13fl	15.1	17.7  ^*-—-+
f— -				
				
				
1993    1994    1995    1996    1997     1998    1999    2000    2001     2002 Source: Czecti National Bank.
Current Situation
d. ZUU4 - access
("Maastricht criteria
26. 7. 2004 - change in position of Prime Minister —> Gross
Analyses of current situation in fiscal policy connected with analyses of Public Budgets Reform - next lecture -► READ MATERIAL ON www.is.muni.cz
Discussion
Mandatory			expenditures
Expenditur«	ss can	ĺ be divided in:	
■ non-man(	lator)	t expen	ditures
■ mandator	y exp	enditures (social benefits,	
unemplo)	anient	benefi	ts, contribution for
building s	aving	s, pubb	c debt interest ...)
■ quasi-mai	idato	ty expenditures (wages, allowance	
organizati	on, .	•)•	26
Issues for Discussion
Fiscal policy objectives of the first Czech government compared with those of student's countries at the same time An analysis of the Czech fiscal policy in terms < access to the EU
Transparency of
ech fiscal sví
The End ©
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