Fiscal Policy and Economic Growth: Lessons for Eastern Europe and Central AsiaCheryl Williamson Gray, Tracey Lane, Aristomène Varoudakis Worldwide experience highlights public finance policies that promote economic growth while meeting the need for fundamental public goods. Macroeconomic stability is essential, as large budget deficits retard growth, followed by moderate levels of public spending - around one-third of GDP or less - especially when governance and public administration are weak; that in turn requires efficiency, particularly in areas such as infrastructure, health, education, and social protection; finally, lower income and payroll tax rates can spur investment and employment. The Eastern European and Central Asia countries pioneered flat income taxes without generally suffering revenue losses as a result, but they have not addressed the problem of high payroll taxes and still face many hurdles in improving the efficiency and effectiveness of public spending and revenue generation. |
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Albania Armenia average Belarus benefits Bosnia and Herzegovina budget Chile comparator countries contributions coun coverage Croatia Czech ECA countries ECA fiscal database ECA focus countries ECA region economic growth effects efficiency Estonia FIGURE fiscal adjustment fiscal balance fiscal deficits fiscal space funding GDP per capita Georgia health spending higher Hungary impact improve income tax increase infrastructure investment Ireland Kazakhstan Korea Kyrgyz Rep Kyrgyz Republic Lithuania low-income CIS ment Moldova OECD out-of-pocket overall payments payroll taxes pension system percent of GDP percentage points Poland population primary fiscal public debt public expenditures public finance public sector public spending ratio reduce reform regression road Romania sample schools significant Slovak Rep Slovak Republic Slovenia social security Source Spain spending on health Tajikistan tariffs tax effort tax rates tax revenue tax wedge Thailand tion transition Turkey Uganda Ukraine variables Vietnam wage World Bank