An institutional analysis of fiscal reform in postcommunist Europe

Abstract

The fiscal systems of postcommunist states in Eastern Europe and the former Soviet Union are undergoing fundamental transformations. The old mechanisms of revenue extraction and expenditure, based on central planning, are breaking down and being replaced by new ones that are better suited to market economies. Of course, it will take several years for these new fiscal institutions to develop fully. The problem is that although postcommunist states need to pursue fiscal policies in order to facilitate structural change, economic growth, equity, and other socioeconomic goals, these efforts are being hobbled by the lack of well-developed fiscal institutions.1 An especially important manifestation of this dilemma is a tendency to incur severe budget deficits and, at worst, fiscal crises where deficits are so large and hard to manage that states encounter great difficulty performing their basic duties.2