ABSTRACT
Reform of the public finances is a major policy issue in transition countries. In the centrally planned economies of Central and Eastern Europe and the former Soviet Union both government revenue and expenditure shares of GDP were high, often in excess of 50 per cent. During transition, a fall in both tax revenue and public expenditure as a percentage of GDP was expected. Indeed, since transition began over a decade and a half ago, many ex-socialist countries have witnessed dramatic falls in tax revenue shares of GDP, as alluded to in previous chapters. This decline in the tax/GDP ratio, whether arising from the SBC, a more widespread poor payments discipline problem or an ineffective tax administration, has raised concerns regarding these countries’ ability to mobilise revenues sufficient to finance public expenditure, redistribute income and, at the same time, embrace effective fiscal policy. Fear of further revenue erosion and low tax potential raises the question of tax capacity levels for these countries in the post-transition era.
