Output Decline and Government Expenditures in European Transition Economies

June 1, 1994

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Gerd Schwartz, and Ke-young Chu. Output Decline and Government Expenditures in European Transition Economies, (USA: International Monetary Fund, 1994) accessed September 19, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper discusses the role of government expenditure policies in the decline in aggregate output in European transition economies. It is argued that there is little evidence for the hypothesis that more expansionary expenditure policies would have helped to mitigate the output decline. While measurement problems allow for very preliminary conclusions, it appears that government expenditures were, generally, not a binding constraint for output. In those cases where it could be argued that government expenditures were a binding constraint, they were usually not the only one. Government expenditure levels still remain on the high side, at least when compared with European market-based economies, and there exists few reasons for pursuing expansionary expenditure policies to lift European transition economies out of the “transitional recession.” While raising expenditure levels per se is an unappealing policy choice, a further reordering of expenditure priorities is desirable. In particular, increases in the share of government expenditures on capital--human and physical--are needed to improve long-run output potential.

Subject: Capital spending, Expenditure, External debt, Government subsidies, Income, Interest payments, National accounts

Keywords: Capital spending, Expenditure mix, Expenditure priority, Expenditure reduction, Government expenditure, Government expenditure constraint, Government expenditure policy, Government subsidies, Income, Interest expenditure, Interest payments, Physical capital, Producer subsidy, Transition economy, Western Europe, WP

Publication Details

Pages:

34
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1994/068
Stock No:

WPIEA0681994
ISBN:

9781451961065
ISSN:

1018-5941

Notes

East European countries comprise Bulgaria, former Czechoslovakia and its two successor republics, Hungary, Poland, and Romania.

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