Eastern Europe, Caucasus and Central Asia, CASE Reports, CASE Network Studies and Analyses, Trade, economic integration and globalization, transition economies

The Nature of Fiscal Crisis in Transition Economies


Fiscal stance is at the center of economic debate all over the post socialist countries. The most important issues that are more or less realized seem to be following.

1. To what extend will public sector budget deficits be monetized in the future i.e., do they eventually spell inflation?

2. How can one reconcile the "twin deficits" i.e. the current account and budget deficit with the need for long run growth and the need for servicing the external debt.

3. Is it true, as argued by M. Friedman and R. Barro that the only relevant aspects of the budget are the volume and composition of public spendings on goods and services and that the choice of financing method is irrelevant?

4. Is a financial crowding out of private saving an issue of concern?

5. How do we assess the solvency of a government i.e. how do we evaluate the consistency of the government's spending and revenue plans with its outstanding debt obligations and its inflation objectives?

6. What are the structural and distributional effects of budget deficits?