H6 - National Budget, Deficit, and DebtReturn

The relation between government deficit and debt is not straightforward and draws intensive attention of users and analysts. In reality, surplus balances can accompany increasing debt even in the long term. The objective of the paper is thus to scrutinize, by analysing international data, the closeness of both aggregates, which is essential for assessment of the long-term sustainability of public finances. The text explains factors entering between both macroeconomic indicators, as they are currently defined. Furthermore, the text discusses alternatives to currently defined debt and their closeness to the government final balance. The development of indicators is analysed using data for the Czech Republic. Within the data availability constraints, an international comparison of balance sheet indicators is presented.

The Stability and Growth Pact has become a primary fiscal policy framework in all European countries since 1997. Together with Maastricht fiscal criteria it determines the fiscal discipline of integration process. The aim of this study is to evaluate ex-post effectiveness of the fiscal rules from the view of a primary structural balance development during 1991-2007. A method taken for the evaluation was a panel-corrected standard errors regression with fixed effects applied on the former euro zone countries (EA12), "old" EU members (EU15) and finally on the EU25. The results of the econometric estimation indicate that all considered rules were effective even though with different impacts. Furthermore, the analysis suggests that electoral cycle, among others, has strong impact on the primary structural component of public balance. However against theoretical assumptions, there is not a conclusive statistical significance of the government behaviour on the current state in the business cycle.

In the last years there has been a growing discrepancy between gross domestic product and gross disposable income (more than a double of government budget deficit in 2006)in favour of non-residents. The difference between the real interest rate and the rate of growth of GDP has been negative in 2000-2006 and is expected to be negative in the near future suggesting that even a small deficit in primary budget balance can stabilize the debt ratio (30 % of GDP). But in a world of uncertainty even in the Czech republic the capital sector is on net a spout and not a sink (the profit rate has been higher than the investment rate in 1995-2008). Hence the czech economy seems to be dynamically efficient and an increase in national saving is necessary.

It is well known that in EMU the degree of similarity in the composition of current expenditures is relevant since the way Member States are affected by external shocks depends at least in part on this composition. In the 8 postsocialist countries recently admitted to the EU (EU-8) the mean value of both current revenue and expenditure correspond to this of EU-12 for the period 1993-2007 (first of all Slovakia and Hungary). Lower are the values in the Baltic States. The dynamics of expenditure on social protection exhibits a clear picture-the main tendency in EU-8 is to decrease the ratio of this kind of expenditure on GDP. Taking into account the functional classification of government expenditure (COFOG) we see that social protection is the largest category of government expenditure for all EU Member States. Only in Poland and Slovenia these outlays correspond to the EU-15 average (in the Baltic states the social protection is very low). The coefficients of variation for the functional catagories of government expenditure display a wider volatility in EU-8 than in the older countries of EU. Panel analysis-(fixed effect models) are in accordence with simple correlations and show that only the unemployment rate has had the expected positive relationship with social transfers for the majority of EU-8 countries. The more profound analysis of the Czech Republic displays the increasing redistribution of GDP since the year 2002.