ABSTRACT
In former centrally-planned economies in Central and Eastern Europe social security system differed in shape from those in industrialised countries. The social protection was overdeveloped in the domain of labour: the communist regimes denied the existence of unemployment, while the state-owned enterprises played a major role in fulfilling the governments’ social protection objectives. The social protection system based on state provision rather than insurance principles went together with the absence of other means of conducting social policy modern market economies make use of, such as social assistance, and tax allowances. Social security benefits and pensions were predominantly financed from payroll taxes. Farmers and self-employed people pay the contributions on their assessed taxable income. Merging of the funds within the state budget allowed for misallocation of resources, since the government bureaucracy had free hands to direct proceeds from the payroll tax to cover deficits in various sectors.
