Publication detail

Public Budgets: Persistent Deficits and Powerful Poverty Trap

Author(s): doc. Ing. Ondřej Schneider MPhil., Ph.D., Tomáš Jelínek, Gabriela Hrubá
Type: Chapter in book
Year: 2006
Published in: Institute for Social and Economic Analyses
Publishing place: Prague
JEL codes:
Suggested Citation:
Grants: 402/03/0107 (2002-2004) Czech Tax system and its distribution effects - an empirical analysis
Abstract: The Czech Republic offers the case of a relatively successful transition economy. It became a member of the European Union in 2004 and is growing robustly again after a lackluster economic performance in the mid-1990s. The country has healthy foreign reserves and its current account is stabilizing, albeit at a high deficit. Inflation is low and the Czech currency strong. The country remains plagued, though, by two resilient structural flaws: high unemployment and high budget deficits.
Our project is aimed at showing that these two flaws are interconnected and cannot be solved independently. Unemployment is high, despite robust economic growth, because the Czech social system makes it rational for a considerable portion of the labor force to be unemployed. Deficits are escalating because the social system draws ever more resources and undermines public revenues.
In this paper, we build upon our previous research into the Czech social and tax systems and their impact on income redistribution. As we are interested in capturing the total, society-wide effects of the two systems, we use a broader dataset, containing pensioner-headed households as well. The inclusion of these households makes our analysis more comprehensive, but as we did not want old-age pensions to dominate our analysis, we treat old-age pensions as market-generated income, not as a social transfer.




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