Fiscal Stabilisation in the Light of Crisis – the Cases of Lithuania and Poland (original) (raw)
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Purpose The purpose of the paper is to describe and evaluate Polish government activities in order to stabilize public finance and to decrease central budget deficit concerning the impact of those activities on economic activity in Poland. Design/methodology/approach The main reasons for fiscal instability in Poland, especially an increase in central budget deficit, are the structural factors. One of them is the structure of the private sector and the conditions of economic activity for small and medium-sized firms as well rather low the competitiveness of Polish economy. So the government is obliged to change this situation by taking serious steps described in the Anticrisis Plan. Findings The findings indicate that the bad fiscal situation and the activities taken by the government to decrease central budget deficit influence the economic activity especially in the period of worldwide financial crisis. The result of the government activities depend on the political determination in caring out public finance reform. Also, cooperation between the legislature and the executive authorities in that area is of importance. Research limitation/implication The paper focuses on government activities to stabilize public finance, financial system and to keep public growth reached so far and those proposed to be introduced in the nearest future. But now it is difficult to evaluate the results of new legal regulations introduced and prepared by the government in Poland. Practical implication The paper, as the framework, discusses the problems of factors of general government deficit in Poland and the needed government's activities to decrease it. The paper might be useful for the researchers from other European countries with bad fiscal situation, because it describes the factors of this situation and the needed activities to improve it in case of Poland. Originality/value The paper focuses on two main issues: the essence of general government deficit and the factors causing it, and, on Polish government activities to stabilize public finance and financial system to keep economic growth. Among others, the government activities to increase investment demand (guarantees for small and medium-sized firms, higher tax investment relief, expenditures on research treated as costs according to tax law) are very important. Introduction Public finance affect growth defined as long-term growth potential. The most important are expenditures on: institutional framework (general government institutions especially public administration and legacy), public investment, public consumption, social welfare, education, research and development. The activities for reducing taxes (especially income taxes) and budgetary deficit are also important (Afonso, Ebert, Thőne, 2005). The total public revenue and expenditures as well as general government deficit or surplus, depend on economic and structural factors. According to that it is necessary to define economic and structural balance. The economic balance is the result of the business cycle that influences public finance (budgetary revenue and expenditures mostly) and it is independent of current fiscal policy. This balance is the outcome of good or bad macroeconomic situation. When the level of current production is higher than potential one, there is an economic surplus and in an opposite situation there is an economic deficit. The economic situation has peculiar influence on public revenue (especially budgetary revenue) through automatic fiscal stabilisers such as indirect taxes (personal income tax and corporate income tax) and direct taxes (value added tax, excise tax). On the contrary, public expenditures that are sensitive to economic situation are expenditures on reducing unemployment in recession period. The existence of economic deficit does not need the necessity to start action typical of active fiscal policy, because it is only in recession period and in medium period that it should be compensated by economic surplus, which is the result of better macroeconomic situation. The structural balance is corrected by economy influence and it is calculated as the reminder between current balance and economic balance. This balance is the answer to what are the reasons for chronic general government deficit taking place even in good economic situation. According to that, the structural balance is the result of government's activity in the field of active fiscal policy. The existence of high deficit in long period might lead to fiscal instability and public finance crisis. This danger is involved especially by public debt which grows in bad economic situation because of growing public expenditures. Rather high level of
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