Europe, CASE Reports, CASE Network Studies and Analyses, system transformation, Trade, economic integration and globalization

Fiscal Crisis in the Transformation Period: Trends, Stylized Facts and Some Conceptual Problems


In practice, the transformation process in post-communist countries covers all aspects of economic and social life, as well as economic policy. By its nature, it must also affect public finance and fiscal policy, and when the transformation process is initiated, the crisis in this latter sphere reflects - often in a drastic manner - the economic problems inherited from the previous economic system. These problems include macroeconomic imbalance, structural and price distortions, redundancy and ineffectiveness of social policy instruments and institutions as well as of public social  services, over-regulation, paralysis of market adjustment mechanisms, and the dominance of state ownership. The crisis of public finance also frequently serves indirectly as an indicator of the extent to which the former political regime lost control over public finances and incomes policy (extreme cases of such loss of control  include Poland in 1987-1989 and the USSR in 1990-1991.