Tax and Pension Reform in the Czech Republic—Implications for Growth and Debt Sustainability

Author/Editor:

Dennis P Botman ; Anita Tuladhar

Publication Date:

May 1, 2008

Electronic Access:

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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:

The Czech Republic has embarked on an ambitious tax reform and expenditure package to bring the deficit sustainably below 3 percent, and intends to reduce the deficit to 1 percent of GDP by 2012. To address the long-term fiscal challenge due to population aging, pension reform proposals are also being considered. In this paper we assess the macroeconomic effects of these measures using the Global Fiscal Model. The tax reform package will achieve a more efficient tax system. If implemented successfully with the intended expenditure savings measures, debt is projected to improve markedly while output would expand. Fiscal sustainability will not be restored, however, even if further measures to bring the deficit to 1 percent of GDP by 2012. Instead, raising the retirement age and prefunding future aging costs would be needed to keep debt below 60 percent of GDP through 2050.

Series:

Working Paper No. 2008/125

Subject:

Aging Consumption Expenditure Fiscal policy Social security contributions

Frequency:

Annually

English

Publication Date:

May 1, 2008

ISBN/ISSN:

9781451869859/1018-5941

Stock No:

WPIEA2008125

Pages:

25

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