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Government Subsidies to Enterprises in Central and Eastern Europe: Budgetary Subsidies and Tax Arrears

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  • Schaffer, Mark E

Abstract

This paper analyses the distribution and allocation of budgetary subsidies and tax arrears in Central and Eastern Europe. Budgetary subsidies are relatively small in aggregate, highly sector specific, and the manufacturing sector receives few of them. Tax arrears, by contrast, are a significant problem, and the paper argues they can be considered a form of government subsidy. Data for the various Visegrád countries suggest that the total stock of tax arrears is on the order of 5- 10% of GDP, the annual flow of tax arrears is around 2% of GDP, and the annual flow of tax arrears to the manufacturing sector is around 1% of GDP. Survey data from Hungary and Poland show that tax arrears are concentrated in a small number of low profitability firms; the main correlate of tax arrears is low profitability; and the flow of new tax arrears is the main financing that enables these very unprofitable firms to continue to operate.

Suggested Citation

  • Schaffer, Mark E, 1995. "Government Subsidies to Enterprises in Central and Eastern Europe: Budgetary Subsidies and Tax Arrears," CEPR Discussion Papers 1144, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:1144
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    Citations

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    Cited by:

    1. Dittus, Peter, 1996. "Why East European banks don't want equity," European Economic Review, Elsevier, vol. 40(3-5), pages 655-662, April.
    2. Munich, Daniel & Svejnar, Jan, 2009. "Unemployment and Worker-Firm Matching Theory and Evidence from East and West Europe," Policy Research Working Paper Series 4810, The World Bank.
    3. Lubomir Dmitrov, 1999. "Budget Constraints of Bulgarian Enterprises, 1996-97," CERT Discussion Papers 9905, Centre for Economic Reform and Transformation, Heriot Watt University.
    4. Rumen Dobrinsky, 1996. "Enterprise restructuring and adjustment in the transition to market economy: lessons from the experience of Central and Eastern Europe," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 4(2), pages 389-410, October.
    5. Bonin, John P. & Schaffer, Mark E., 1996. "Bankok, vállalatok, rossz hitelek és csődök Magyarországon, 1991-1994 [Banks, firms, bad debts and bankruptcies in Hungary, 1991-1994]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(2), pages 93-113.
    6. Schaffer, Mark E., 1998. "Do Firms in Transition Economies Have Soft Budget Constraints? A Reconsideration of Concepts and Evidence," Journal of Comparative Economics, Elsevier, vol. 26(1), pages 80-103, March.
    7. Treier, Volker, 1999. "Unemployment in reforming countries: Causes, fiscal impacts and the success of transformation," BERG Working Paper Series 29, Bamberg University, Bamberg Economic Research Group.
    8. Milan Nikolic & Jacek Rostowski, 1995. "Exit in the Framework of Macro-economic Shocks and Policy Responses during Transition: a Cross-country Comparison," CASE Network Studies and Analyses 0056, CASE-Center for Social and Economic Research.
    9. Pirttilä, Jukka, 1999. "Tax evasion and economies in transition: Lessons from tax theory," BOFIT Discussion Papers 2/1999, Bank of Finland Institute for Emerging Economies (BOFIT).
    10. Daniel Munich & Jan Svejnar & Katherine Terrell, 2001. "Worker-firm Matching and Unemployment in Transition to a Market," Development and Comp Systems 0012011, University Library of Munich, Germany.
    11. Lucjan T. Orlowski, 1996. "Fiscal Consolidation in Central Europe in Preparation for Accession to the European Union," CASE Network Studies and Analyses 0077, CASE-Center for Social and Economic Research.
    12. Jérôme Sgard, 1996. "Credit Crisis and the Role of Banks During Transition: a Five-Country Comparison," Working Papers 1996-08, CEPII research center.
    13. Irina Akimova & Gerhard Schwödiauer, 1999. "Restructuring of Ukrainian Enterprises after Privatization: Does Ownership Structure Matter?," Industrial Organization 9903003, University Library of Munich, Germany.
    14. Shumei Gao and Mark E. Schaffer & Shumei Gao and Mark E. Schaffer, 1998. "Financial Discipline in the Enterprise Sector in Transition Countries: How Does China Compare?," William Davidson Institute Working Papers Series 124, William Davidson Institute at the University of Michigan.
    15. R. Dobrinsky & N. Dochev & B. Nikolov, 1997. "Debt Workout and Enterprise Performance in Bulgaria:," CERT Discussion Papers 9715, Centre for Economic Reform and Transformation, Heriot Watt University.
    16. Zhuravskaya, Ekaterina & Ponomareva, Maria, 2004. "Federal Tax Arrears in Russia: Liquidity Problems, Federal Redistribution or Russian Resistance?," CEPR Discussion Papers 4267, C.E.P.R. Discussion Papers.
    17. Freinkman, Lev & Haney, Michael, 1997. "What affects the Russian regional governments'propensity to subsidize?," Policy Research Working Paper Series 1818, The World Bank.
    18. Jens Hölscher & Nicole Nulsch & Johannes Stephan, 2017. "State Aid in the New EU Member States," Journal of Common Market Studies, Wiley Blackwell, vol. 55(4), pages 779-797, July.

    More about this item

    Keywords

    Central and Eastern Europe; Financial Distress; Subsidies; Tax Arrears;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H29 - Public Economics - - Taxation, Subsidies, and Revenue - - - Other
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • P43 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Finance; Public Finance

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