The adjustment problems of public finance in countries of Central and Eastern Europe (CEE) are often misunderstood and misinterpreted by western scholars. This book contributes to the bridging of the gap between what is being thought by external observers and what the actual public finance reality is, as described by competent local scholars. Popular political economy research has remained biased towards advanced countries and has neglected developing and transition economies. Publications on CEE countries? public finances seem to be reluctant to apply the conceptual framework of standard political economy to these countries because of the assumption that CEE economies are different from their Western peers. But is this really the case? Are CEE economies so much different that none of the well-known ?Western? political economy concepts or models can be applied to the analysis of fiscal performance in the region? Benczes demonstrates that they can be safely applied in the context of CEE economies as well. He sees no need to develop a separate or unique theory designed for the study and understanding of (one-time) transition economies. ÿ

Are budget deficits bad for an economy? This question has perplexed economists for centuries. Historically, three schools of thought have emerged on this matter. One school takes the position that deficits have adverse influence on inflation, interest rates and private investment. As yearly borrowings to finance budget deficits accumulate into the stock of national debt, interest payments on such debt increase the burden of taxation and have inequitable distributional consequences. Second, suggest that deficits can be employed to support economic activity and employment. Finally, there is a third school, which considers that the (deficit and) public debt has little overall impact on the economy. This paper critically evaluates these competing paradigms considering the implications for economies in transition and developing nations. In particular, it is argued that the shift in budgetary norms from a year on year balancing to perpetual deficits is a relatively recent phenomenon especially, in the Anglo Saxon countries. This shift has been visibly accompanied by a substantial increase in the size of the public sector in these countries necessitating higher taxes and attendant distortion in incentives. Economies in transition would be wiser and healthier if they could avoid such mistakes by optimising the role of government, and facilitating markets and the voluntary sector. To this end, some general policy advice is also proffered.

Key medium– and longer–term fiscal issues faced by transition economies are reviewed, including government solvency and the sustainability of the fiscal–financial–monetary program. The paper aims to assist the design and implementation of future Fund programs and to contribute to the debate about fiscal policy in transition economies. After presenting a framework for evaluating the sustainability of the fiscal–financial–monetary program of the state, some numerical material is presented on public debt, (quasi–) fiscal deficits and monetary financing. Eight budgetary issues of special relevance to transition economies are considered next. The lessons from this study are summarized in a number of propositions.

It is now ten years since the former Soviet Union collapses and the countries of Europe and Central Asia abandoned central planning. Enough experience has accumulated to allow a more reflective study of the transition period. One of the most critical elements of the transition to a market-based economy has been the establishment of the institutions and markets that constitute a financial system. This book examines financial transition through the lens of flow of funds accounts. These accounts have been used in the OECD countries for many years as an aid in analyzing money flows around their financial systems. This is the first time, however, that an attempt has been made to interpret financial transition from this perspective and it has yielded what the authors consider to be new, useful insights into the processes.The book reviews the evolution of financial systems in eight transition countries: Estonia, Hungary, Kazakhstan, Latvia, Lithuania, Poland, Russia, and Romania. Each chapter draws upon a flow of funds analysis to illuminate the relationship between macroeconomic performance and the evolving pattern of financial flows through the emerging markets and institutions. The introductory chapter discusses the nature of the flow of funds approach and its applicability to transition economies, while another chapter compares and contrasts the macroeconomic and financial performances of the eight countries by focusing on the orientation of sectoral imbalances within each economy and the nature of financing flows associated with them.

In this paper we analyze how Western Balkans public finances adapted to the boom-bust cycle. Large capital inflows into emerging European economies during the mid-2000s resulted in rapid economic growth and convergence to EU income levels. This also resulted in improved fiscal positions of most countries, on the back of strong revenue performance. Yet, since the onset of the global economic crisis, many countries have struggled to adjust to the new situation of lower external financing and lower growth.

The global economy has experienced four waves of rapid debt accumulation over the past 50 years. The first three debt waves ended with financial crises in many emerging market and developing economies. During the current wave, which started in 2010, the increase in debt in these economies has already been larger, faster, and broader-based than in the previous three waves. Current low interest rates mitigate some of the risks associated with high debt. However, emerging market and developing economies are also confronted by weak growth prospects, mounting vulnerabilities, and elevated global risks. A menu of policy options is available to reduce the likelihood that the current debt wave will end in crisis and, if crises do take place, will alleviate their impact.

Fiscal stance is at the center of economic debate all over the post socialist countries. The most important issues that are more or less realized seem to be following. 1. To what extend will public sector budget deficits be monetized in the future i.e., do they eventually spell inflation?. 2. How can one reconcile the "twin deficits" i.e. the current account and budget deficit with the need for long run growth and the need for servicing the external debt. 3. Is it true, as argued by M. Friedman and R. Barro that the only relevant aspects of the budget are the volume and composition of public spendings on goods and services and that the choice of financing method is irrelevant? 4. Is a financial crowding out of private saving an issue of concern? 5. How do we assess the solvency of a government i.e. how do we evaluate the consistency of the government's spending and revenue plans with its outstanding debt obligations and its inflation objectives? 6. What are the structural and distributional effects of budget deficits? It is not easy to solve these or similar problems in mature developed market economies. Trying to answer to these questions with regards to transition economies appears to be very hard work. Specially if these problems are to be placed within the framework of fiscal crisis. Therefore it seems sensible to start the analysis with describing the nature of fiscal stance in post socialist countries and then use the concept as a background for further more detailed questions.

This book, by Abdessatar Ouanes and Subhash Thakur presents the principal elements of macroeconomic accounting and analysis for the real, fiscal, monetary, and external sectors of a transition economy, using Poland as a case study. Background information, exercises, and issues for discussion are also provided.