Electronic Library of Scientific Literature - © Academic Electronic Press
Volume 49 / No. 1 / 2001
In the last third of the nineteenth and during the whole twentieth century the government expenditures in the current advanced market economies kept growing. After World War II the growth rate of these expenditures was very boisterous indeed. The growth of general government expenditure (GGE) was linked with economic growth and with the increase of their share in GDP. That naturally was in various ways indirectly connected with the increase of economic performance.
In the last quarter of the twentieth century the GGE increase encounters certain limitations, mainly concerning their share in GDP. The GGE growth rate started to adapt itself to that of the economy.
Adjustment of the GGE growth rate to that of GDP is implemented in two alternatives. The first one is a result of a systematic economic policy premeditated and aimed at the preservation of the constant share of GGE in GDP. The second alternative performs additional periodic corrections of the non-uniform GGE and GDP development. Using statistical analysis one failed to discover any influence on the economic growth rate regardless of what type of GGE and GDP growth rate adjustment was used.
From the point of view of seeking the strategy of fiscal policy aimed at the support of economic growth one discovers an interesting development in the country group (Ireland, Australia, Canada). In these countries high economic growth rates are combined with low values of GGE elasticity increments related to GDP increments. At the same time (as an influence of an above average economic growth rate) relatively high GGE increments occur too.
The interpretation of the results of analysis carried out is based on the initial assumption that within the relationship between GGE development and GDP development GDP changes represent an independent variable; the changes of GGE are markedly subject to GDP changes particularly during recent three decades. We reckon statistically determined regression relation between developments of GDP and GGE as being the expression of the causal connection listed above.
According to the above-mentioned initial assumption of our analysis the increase of economy performance is not provoked by the GGE increase, on the contrary the economy expansion enables the GGE growth. This assumption is in agreement with findings of eco-nometric analyses of the relation between government expenses and economic growth that are summarised for instance in . The results of our observations (here we mean above all observations on the adaptation of the GGE growth rate to GDP growth rates) confirm this. One can refer after all to the generally accepted macro-economy postulates that the extent of government expenditures (their increase) can influence the economy growth rate for a short term only – e. g. during recession by activating a part of idle capacities.
Real (and statistically measured) link between GDP and GGE development is, howe-ver, complicated. This link asserts itself in each country at a different level of the particular relation. One expresses a hypothesis that the development outline of governmental expenditure is in principle set by economic factors integrated into the development of economy performance with a certain (not decisive, not everywhere and only temporarily functioning) mixture of political influence. The implementation of the stated connection is influenced by non-economic, mainly cultural, historical and socio-political factors included in the scales of traditions, merits and requirements, in thought patterns and in the performance of the population. These factors are different country from country. Their effects do not disturb close relation between development trends of government expenditures and economic performance. They cause, however, different level of GGE share in GDP at co-ordination of relevant economic processes in various countries.
The opinion on the active role of economic growth related to government expenditures is based on relation of economic growth with the function of production factors. Government expenditures as a whole can not be incorporated into production factors. As soon as one realises the complex structure of government expenditures and various relations of their parts towards factors of economic growth one has to admit that government expenditures are for economic growth not quite irrelevant. Reflecting relation of the government expenditure development and national economy performance leads towards the conclusion that observation of various structural cross-sections of government expenditures (their content) and their deeper reciprocal connections with the economic growth as the basis of the overall development of government finances is necessary.
The paper analyses the changes in the type structure of public expenditures in advanced economies. It deals with long-term changes (approximately covering the period since 1970) and is concerned particularly with the changes in the period of fiscal consolidation during the nineties. Selected set of advanced economies consists of the EU countries, the USA and Japan. Structural analyses of public expenditures in advanced economies might serve as an aid (not an instruction, however) also when considering future trend of public finances in transforming economy.
Our assumption, that along with the changes in the volume of expenditure of general government (or with the changes of general government expenditure share in GDP) marked movements occurred also in the type structure of these expenditures, has been confirmed. At the same time, these structural changes were similar in the predominant part of selected advanced countries.
Typical structural change in expenditures of the general government in a long-term horizon (since the year 1970) appears to be the growth of the share of running expenditure at the expense of capital expenditure. Marked changes are in progress also inside the running expenditure structure: the share of total transfers grows at the expense of the share of consumption, and within the framework of transfers the share of transfers to households grows at the expense of the share of transfers to enterprises. Transfer share growth at the expense of current consumption means that governments relocate gradually larger share of resources to other subjects (specifically households) and governments alone decide on the use of smaller share of resources.
The paper deals also with the search for certain differences in the structure of expenditures in more efficient and less efficient economies. More efficient EU countries compared to less efficient ones are characterised by the fact that at the end of the monitored period government relocates higher share of resources through transfers to other subjects (mainly households) and pays lower share of interest payments. The structure of expenditure in European countries however strongly differs from the structure of the USA or Japan (for instance extraordinarily low share of enterprise transfers in the USA or extraordinarily high, however decreasing, share of capital expenditure in Japan).
At the same time in the long-term horizon came to a certain convergence of public expenditure structures. In the set of selected countries one discovered convergence in the values of indicators in the case of the transfer payments share, the share of consumption as well as in current (and therefore also capital) expenditures. The values of these parameters are less dispersed towards the end of the monitored period compared to its start. Reversed shift can be seen in the case of interest payments, where the shares are in selected countries more dispersed at the end of the monitored period, compared to its beginning.
The beginning of the era of the nineties, which is more closely observed in the paper, was characterised by the GDP share increase in the total expenditure of the general go-vernment. This expenditure expansion had its structural reflection in the transfer growth to households in expenditures of the general government. Such a structural shift can be explained, however, by the fact that countries responded to the world economy recession also by structural changes of expenditures. Along with the growing unemployment rate the weight of payments to the population increased too. The first half of the nineties was also typical by the deceleration of the significant increase of interest payments.
A certain extreme in this period occurred in the evolution of the expenditure structure in Finland and in Sweden. In these two countries an extraordinarily strong increase of the share of expenditures of general government in the GDP was accompanied by marked restructuring in favour of payments for population. This structural shift responded to the huge increase of unemployment rate in those countries.
An example of the strategy different from the advancement of the whole set of monitored economies can be the progress of a group of countries (Denmark, Ireland, Portugal), which led other countries in the implementation of structural changes by decreasing interest payment share.
Beside long-term changes the paper pays attention to the structural change in expenditures, which occur during the period of marked improvement of the result of economy management of the general government (measured by the ratio of general government deficit toward the GDP) in the nineties. During the second half of the nineties similar process of deficit management dismantling alongside with the rationalisation of public finances was implemented in almost all EU countries (aiming at the fulfilment of the EMU criteria), actually also in the USA. The fact that several, and in most countries similar, structural changes in public expenditures occurred represents a remarkable feature of the consolidation in public finances.
The period of consolidation of public finances brought about the restitution of intensity of some structural shifts. The movement aiming at the increase of the share of current expenditures at the expense of capital expenditures strengthened again. In the total volume of current expenditures the share of transfers increased while the shares of interest payments and consumption stagnated.
We assume that the structure of public expenditures in the transforming economy of Slovakia will gradually approach the structure of public expenditures of advanced countries in spite of the fact, that the structure convergence of public expenditures is not an explicitly formulated target of the Slovak economy policy. We substantiate this implication for instance by the fact that in spite of considerable individual differences the structure of public expenditures in advanced countries in the long run converged (standard deviation between the weight of various types of expenditures related to total expenditures). Besides, the perception of the function of public finances gradually approaches the perception of the function of public finances in advanced countries. This will apparently influence the convergence of the structure of public expenditures (one has to remark, however, that by the experience of advanced economies one cannot define a pattern of ideal proportions of public expenditures).
Fiscal operations are not usually implemented on a single government level, yet on several government levels (or outside them too). There are economic arguments for such diverse modes. There exists a fundamental question of whether public assets and services should be managed centrally or de-centrally.
The aim of the presented paper is to document the existence and relations among various government levels at public assets management. It provides an orientation in the position of certain governmental levels in statistically available countries.
The analysis of how certain levels of governments participate at public expenditures did not permit entirely unequivocal tendencies mainly on the two grounds.
First. Systems, which exist in the sphere of public expenditures, are to a great extent an outcome of long-term historic development and a certain social consensus. In advan-ced economies public needs are managed in a democratic way on appropriate level at various formal structures, and various government levels participate at the management. The development analysis of the participation of various governmental levels covering about 10 year period has shown that changes in proportion among certain governmental level progress gradually and mostly towards the strengthening of decentralisation. Among advanced economies, however, appeared also some corrections of the decentralisation stage already achieved. More significant changes in both directions occurred only scarcely. Marked de-centralisation changes in advanced countries, as often argued in Slovakia in relation to the prepared public administration de-centralisation (but above all strengthening of self-government), have been thus not confirmed. From Slovakia’s point of view, however, this does not justify the need to retain relations between governmental levels. One has to take into account that in advanced countries a certain relative stability among governmental levels is being reached in the situation where for instance the share of self-government expenditures in the GDP is significantly higher compared to Slovakia.
Second. Information on statistically ascertained participation of certain government levels reports to a very limited extent on appropriate degree of centralisation or de-centralisation of public administration. In addition, the understanding of single governmental levels is not the same in all countries. It is difficult to decide which institutions should be considered as intermediate government level and what nature they have (Civil Service or self-government). Results that have been found are further essentially modified by different social security systems in individual countries and expenditure allocation of relevant funds into expenditures of certain governmental levels.
One can say in general that the decentralisation degree of public expenditures down to lower governmental levels markedly differed country from country. In monitored countries with intermediate and local government levels this decentralisation degree appeared to be in the years 1994–1998 within a fairly wide range of 60–30 %. Countries with local governmental level only typically have in general lower level of expenditure decentralisation (in the range of 44–10 %). Average share of local governments in total expenditure reached there 25 %, while in countries with intermediate and local governmental level this share reached up to 41 %.
Social security expenses happened to become in recent decades the fastest growing item within public expenditure. Due to the decreasing share of state budget in central government expenditure the manoeuvring area for central government economic policy is gradually diminishing. Social security funds are usually in deficit and cause general deficits of central governments.
Social security fund expenditures markedly change also the appreciation of certain governmental level positions. Whereas the data adding these expenditures into the expenditures of central governments documented relatively high prevalence of central decision making on the distribution of public expenditures (roughly of the ratio 2 : 1), data excluding these expenditures witness considerably higher signification of inter-mediate and local governmental levels (central government expenditures to expenditures of lower level governments are roughly 1.5 : 1).
From the point of view of expenditure classification as current and capital expenses one has found on governmental levels marked prevalence of current expenditures (96 % on central level, 80–90 % on lower levels).
Information on subsidy policy proves that this policy is a result of complicated and heterogeneous policy of the decentralised management of public services. Related to this are problems of tax competencies of lower governmental levels. It appeared that there is no model of financing lower governmental levels, which could be applied in any country.
Analysis of expenditures of certain governmental levels in the phase of consolidation of public finances has shown a steep decrease of the growth rate of public expenses during consolidation period, above all on the level of central and local governments as well as the decrease of their share in GDP. Intermediate governmental levels were relatively least “afflicted” by this phenomenon.
Bank restructuring in Slovakia represents mutually interconnected long-term process of the system and institutional changes and at the same time the process of financial revival and sanitation. Both these demand parallel and co-ordinated solution.
Basic strategic aim is long-term bank stabilisation and the generation of optimum prerequisites for banks’ incorporation into the future euro-bank sector. Bank restructuring should at the same time provide conditions for an indispensable privatisation of key banks. At the same time the successful bank restructuring is linked with the restructuring in the enterprising sector, with the provision of prerequisites in the whole economy and with radical changes of ownership relations in state monetary institutions.
In the paper liberalisation course in WTO and in the OECD are characterised and the survey of the Slovak commitments related to these organisations in the sphere of the capital and financial services flows is presented. Concluding part of the paper deals with assets and risks of the liberalisation process in the financial sector.
The paper points out how diverse standpoints of individual countries during negotiations on General Agreement on Trade in Services (GATS) led to generally complicated and non-transparent concept of liberalisation. Service sectors liable to the liberalisation process after GATS rules are only those that accessory countries itemise in relevant lists of liberalisation commitments; accessory countries can define within the framework of sectors specific exceptions concerning market access and national treatment.
Slovak Republic actively participated at several negotiation rounds on the liberalisation of trade with financial services. These negotiations were successfully concluded on 12. 12. 1997 (after the conclusion of the approval process an agreement on financial services came into force on 1. 3. 1999). After adopted commitments SR is obliged not to deteriorate conditions for providing financial services and move along in further liberalisation of financial services indiscriminately towards all WTO countries. With the exception of two sectors all other sectors of financial services were included in the List of Special Obligations.
Capital flow and trading in financial services among OECD member countries is regulated by the Liberalisation Code for the Capital Flow and Liberalisation Code for Current Invisible Operations. Unlike GATS, where rules that are being exercised are formulated rather by individual accessory countries, within the framework of OECD willingness and ability to exercise equal liberalisation principles are essential conditions of membership.
Liberalisation in the sense of liberalisation codes of OECD means the abatement of measures (laws, decrees, regulations, rules, and guidelines), that limit agreements or implementation of transactions and transfers from the point of view of operations specified in Codes. Liberalisation measures as well as limitations are applied towards all member countries on indiscriminate base. For all that the application of this principle does not depend on the extent of limitations relevant country still exercises. The paper characterises the mode of accepting liberalisation obligations and reservations towards concrete items of codes, and the meaning of the institute of stabilisation and derogation.
Concerning the admission of SR into OECD one observes considerable acceleration of the liberalisation process. The adjustment of legislation that blocked the deetatization process and privatising of the whole range of important enterprises and financial insti-tutions constitutes part of this liberalisation process. Legislation measures enabling all types of foreign financial institutions their operation in Slovakia in their branch offices and gaining real estates inevitable for their operation are part of this liberalisation process as well. Reservations claimed by the Slovak Republic at the admission into OECD in the sphere of foreign direct investments at home refer currently to specific areas only. Marked advance has been achieved also in the liberalisation of other capital flows (aside from foreign direct investments). All long-term and medium-term capital transaction from abroad are in principle liberalised. As for the capital flows from Slovakia abroad, the extent of residual restrictions is a bit broader. All listed restrictions should be gradually eliminated by the years 2001– 2003.
The Slovak approach towards liberalisation of financial services on the across border basis is markedly more reserved compared to that of the liberalisation of capital flows. This treatment is justified by several inevitable structural reforms in the financial sector, which are currently prepared and implemented.
Characteristics of assets and risks of the liberalisation in the financial sector draws the attention to the significant dilemma presented to the economic policy at the regulation of this process. The task of the economic policy is to ensure the balance between positive effects of this process for economic development and to mitigate its negative macroeco-nomic effects. Stable macro-economic policy, structural reforms in financial sector, prudent regulation and consistent financial supervision occupy key position in this process.
The paper deals with several aspects of the international financial system. The first aspect reflects the appreciation of character and possible impacts of the Multilateral Agreement on Investments (MAI). One characterises this agreement not only from the point of view of real and system framework (contents and key aspects), but also from the influence on candidate countries point of view. The release of capital flows and new level of co-operation of national governments and strategic investors changes not only the position of candidate countries but also the position of national governments toward foreign investors. Temporary interception of the admission process into MAI or its temporary constricted application to OECD member countries only (two groups of candidate countries, OECD members and non-members) makes no difference here.
Second aspect constitutes a draft of expected changes in the international financial architecture in the horizon of 2– 5 years. Drafting of key changes in the sphere of new rules for world financial markets, abolition of unsteadiness of international capital markets and the reform of globally operating institutions are involved here. The point is not only the design of current and future changes, but also to draft new level of co-operation between: IMF, World Bank, WTO and BIS. New system of rules is involved, which should limit turbulence in world financial markets, make financial flows more transparent and mitigate the unsteadiness of international capital flows. The inevitability to define conditions for international capital flows (investors, exchange rates) and also the provision of a set of tools to limit the danger of infection of healthy economies through panics among investors appears in a new shape. Also it will be necessary to accept international rules for the limitation of capital drift (above all short-term one) during turbulence in capital markets.
New international financial architecture (yet in the process of completing) markedly influences Slovakia’s position too. It represents not only the formation of conditions for foreign investors’ entry (the possibility to foresee changes in enterprising environment), but also to provide conditions to gain capital resources in international capital markets. One therefore analyses not only barriers that exist and limit the entry for foreign investors, but drafts also needful changes that might lead to make Slovakia more attractive from foreign investors’ point of view.
Special part of the paper is dedicated to the discussion of the relation of enterprising subjects and capital market. Interconnection of smaller national stock exchanges, new business strategy of diversifying possible acquisition of capital resources (capital market-banks-foreign investors), decreased vulnerability of national economy in relation to international capital flows create one aspect of changes.
The second aspect is constituted by the new regulation framework represented by the establishment of the Financial Market Regulatory Office, which integrates in itself the supervision of bank, insurance and capital markets.
The privatisation process of commercial banks and drafting its potential influence provides the third aspect. The aim of the paper is to draft the interconnection of indivi-dual changes in the whole structure of international capital flows currently and in the near future including the outline of possible consequences for the Slovak Republic also for the accession process into the EU.
The paper deals with the situation of households in broader socio-economic relations. As households represent in theory, and in practice too, an association of producers and consumers, they create through their economic and consumer activities an intersection of economic and social development. They are thus not only a passive reflection of the economic reality, yet they actively play an important role of the socio-economic movement. Households through their own private consumption constitute an incentive for economic dynamics. One can therefore talk about a certain subsistence dependence of household consumption on production (economic growth) and at the same time about a certain functional dependence of economic growth on household consumption. Similarly, in classic and neoclassic model considerations too, the same importance in national economy is ascribed to enterprises and households, where both are performing economically equivalent activities. Classic and neoclassic theoretical substantiation of the importance of private consumption in the whole aggregate demand reflects real causal link between household decisions on their private consumption and the real economic growth. High share of private consumption in the used GDP in developed countries confirms the influence of household demand on the course of an economic cycle.
Provision of an economic development leading towards the economic growth is an actual spotlight in transition economies. Thus the exploitation of all accessible macro-economic motivations aiming at the economic growth is inevitable, at the same time, however, they must be considered as a certain communication channel between citizens and the government. One should consider this communication in the sense of positive or negative stimulation of their economic activities and merit assessments, and ask whether they motivate the preservation of the fairness principle. This principle is meant in a sense of whether each member of the society occupies social position achieved by his own endeavour.
As parameters of external and internal incentives that influence behaviour of economic subjects are fairly variable, wider space is opened for the understanding of economic growth not only as a result of purely economic and pragmatic factors, but also of merit systems and institutional frameworks in a society.
As households represent a certain microeconomic parallel of macroeconomic chan-ges, the pursuit of fast economic growth should, in the end, manifest itself also by cor-responding positive changes of their living conditions, which might motivate them to identify themselves fully with changes that occurred and conduced them to accept market merits.
Transformation costs measured by the decrease of private consumption proved to be high in several countries. That, to a certain extent, weakened population’s support for reforms. There are problems of how households accept the newly emerged society stratification linked with the income and consumption differentiation, unemployment and poverty phenomena. The question is, whether the approach towards these features reflects surviving elements of paternalistic desires or if these are accepted as an inevitable part of the approximation toward market economies, while expecting positive changes. These problems remain unanswered yet.
Next analytical part of the paper deals with transformation costs measured by the decrease of private consumption. This part is centred on CEFTA countries in general and on the Czech Republic and the Slovak Republic in particular. The author points out that the decrease of real income, increase of consumer goods expenses and correspondingly the decrease of relevant consumption led towards creation of certain stabilising groups of households that oriented themselves at the structure of consumption accessible for them.
Summarising, the author presents a following problem. In the pre-transformation period the prevalence of household demand in the unbalanced market of goods and servi-ces was favourable for the supply side and resulted in a certain loss of motivation for the rational economic activity. Nowadays, however, currently decreasing household demand might be just the element that could endanger the internal balance formation in the market of goods and services.
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