Electronic Library of Scientific Literature


Volume 47 / No. 4 / 1999




During the years 1996– 1998 a discrepancy in the public finance originated and became worth in Slovakia. In order to get some knowledge that could be helpful for the process of public finance consolidation in the Slovak Republic, this article analyses the whole process that occurred in OECD countries under a different historical background.

The chart No. 1 shows that the situation with governmental finance significantly improved especially in the years when the GDP grew faster or when it was kept on a positive level.

However, the dependency between the government finance and the economic growth results (as it is quite clear from the chart) was not always uncompromising. The government finance results shown as a budget balance ratio (deficit or surplus) to GDP were in all examined countries affected by the budget receipt and outlay development trends which were to a certain extent independent from the economy performance development in a respective economy.

It is very obvious from the chart that during the examined period the public finance, regarding all countries included, were found from time to time in a crises and subsequently in the consolidation. The chart testifies a relative independence between the public finance development and the trends of economic growth being always and everywhere only a short phenomenon, and in accordance with that the government finance consolidation is actually an attempt to harmonize their development with the GDP development.

In addition, the chart in a graphical way described that the balance recovery strategy based on an expansive financial policy was applied only during a short time – and it happened in the year when the recovery sank down to the recession bottom. A notable increase of budgetary spendings in the following years led to the economic growth reco-very, the improved governmental finance development and through that we witnessed a medium consolidation period of the governmental finance.

When reviewing the implementation of the expansive financial policy on behalf of strengthening the macroeconomic balance, we should notice that:

Firstly, the contemplated strategy was exploited mainly in all examined countries, although, as we have already mentioned, in all cases only shortly. Secondly, the state budget spendings expansion was used as a tool for overcoming the decline in economic recovery especially in the 70s and in the first half of 80s. Due to swings of the economic policy from the Keynessian approach in the 80s, some impulses for financial expansion were introduced in order to expand the demand and in such a way to overcome the recession. But it happened rarely.

The previous findings about a special application of the financial and political expansion (using it for overcoming the recession-and-recovery fluctuations which in the 90s were only occasional) have led to a conclusion that this strategy is not appropriate for the current state finance consolidation purposes in the SR.

The graphical presentation of the dependencies development between the real GDP growth and the budgetary figures development also indicate that the process of consolidation of the governmental finance in the examined countries during the 90s was running a medium term, and in the western Europe it was motivated by the effort to fulfil conditions for admittance into the European Monetary Union. The following tables investigate the scope and time dimensions of implementing the described consolidation task accompanied with the receipt and outlay part of the governmental finance.

It took 2–4 years to cut the public budgets deficit / GDP ratio from the level approximately the same as recorded in 1998 in the SR (–4,3%) up to or under level –2%, in the majority of the examined countries. In 2 countries the solution took 5 years, and only 3 countries were able to find solution within 1 year. From the point of view of the international comparison it is evident that the task for the SR which requiring to cut the gene-ral government budget deficit / GDP ratio from –4,3% in the year 1998 for –2% as early as during 1999, is totally unrealistic.

Consolidation of the governmental finance therefore cannot be understood as a single act, or a result of a single government decision. It can be successful (this is especially true for the economy with obsolete and rigid economical structures like in the SR) only as a several years lasting process. The issue is not only gradually achieve consolidation goals, but also a gradual implementation of measures prepared within the medium period oriented consolidation program which must be corrected and amended on its course.

The outcome of the governmental finance consolidation itself is the need to cut go-vernmental outlays. Consequently also on the field of governmental economy it is true that a crown saved is more precious than an additional crown earned as the budgetary receipt.

Table 1

Consolidation Progress of a General Government Budget1

  General government budget deficit as a percentage of nominal GDP by year of consolidation Consolidation period
Country year 0. year 1. year 2. year 3. year 4. year 5. length in years years
Greece – 7.5 – 4.0 – 2.7 – 2.5 – 2.1 *2 5 1997– 2001
France – 4.9 – 4.1 – 3.0 – 2.9 – 2.4 – 1.9 5 1996– 2000
Italy – 6.7 – 2.7 – 2.6 – 2.2 – 1.8 . 4 1997– 2000
Germany – 3.4 – 2.6 – 2.4 – 2.1 – 1.8 . 4 1997– 2000
Holland – 3.9 – 3.2 – 3.8 – 3.7 – 2.0 . 4 1993– 1996
Portugal – 5.8 – 3.3 – 2.5 – 2.3 – 2.0 . 4 1996– 1999
USA – 4.4 – 3.6 – 2.3 – 1.9 . . 3 1993– 1995
Belgium – 4.9 – 3.9 – 3.1 – 1.9 . . 3 1995– 1997
Denmark – 2.8 – 2.6 – 2.2 – 0.9 . . 3 1994– 1996
New Zealand – 4.7 – 3.8 – 3.3 – 0.6 . . 3 1991– 1993
Austria – 5.1 – 3.7 – 1.9 . . . 2 1996– 1997
Spain – 4.7 – 2.6 – 1.9 . . . 2 1997– 1998
Finland – 5.2 – 3.7 – 1.4 . . . 2 1996– 1997
Sweden – 7.0 – 3.5 – 0.8 . . . 2 1996– 1997
England – 4.4 – 2.0 . . . . 1 1997
Canada – 4.3 – 2.0 . . . . 1 1996
Australia – 4.0 – 2.0 . . . . 1 1995


Table 2

Change in Quotas of the General Government Budget from GDP During Consolidation Period in Points1

  During the whole consolidation period C = A + B accord. year of consolidation
Country receipts (A) outlays (B) A + B = C A : B (abs. value) year 1. year 2. year 3. year 4. year 5.
Greece 1.0 – 4.4 – 3.4 0.23 – 1.7 – 0.2 – 0.73 – 0.83 *2
France 2.3 – 0.8 1.5 2.87 2.1 – 0.4 0.1 0.0 – 0.3
Italy 1.0 – 3.9 – 2.9 0.26 – 0.2 – 0.9 – 1.0 – 0.8 .
Germany – 1.2 – 2.8 – 4.0 Z – 1.7 – 1.3 – 0.1 – 0.9 .
Holland – 3.9 – 5.8 – 9.7 Z 0.7 – 5.2 – 2.9 – 2.3 .
Portugal 2.9 – 0.9 2.0 3.22 1.3 0.6 – 0.2 0.3 .
USA 0.9 – 1.6 – 0.7 0.56 – 0.4 – 0.6 0.3 . .
Belgium 0.1 – 3.0 – 2.9 0.03 – 1.3 – 0.5 – 1.1 . .
Denmark – 0.4 – 2.3 – 2.7 Z 0.1 – 3.2 0.2 . .
New Zealand – 2.6 – 6.8 – 9.4 Z – 4.9 – 0.4 – 4.1 . .
Austria 0.5 – 2.7 – 2.2 0.19 – 0.4 – 1.8 . . .
Spain 0.5 – 2.3 – 1.8 0.22 – 0.9 – 0.9 . . .
Finland 0.1 – 3.8 – 3.7 0.26 1.1 – 4.8 . . .
Sweden 3.4 – 3.3 0.1 1.03 2.9 – 2.8 . . .
England 0.4 – 2.0 – 1.6 0.20 – 1.6 . . . .
Canada 0.5 – 1.8 – 1.3 0.28 – 1.3 . . . .
Australia 1.4 – 0.6 0.8 2.33 0.5 . . . .

1 According [ 8]
2 Prognosis for the last year of the assumed budget consolidation (r. 2001) was not available.
3 In Greece the values A and B listed as Year 3 and Year 4 were derived from the prognosis for years 1999 and 2000.
Z – Quota of the receipt and outlay has minus value.

Especially at the beginning of a consolidation period the governmental budget deficits have a tendency to decline, also with the help of increasing governmental receipts. With proceeding consolidation, the government receipts have shrank to such an extent that the governmental receipt quotas were even lowered. This is usually related with a tax rate cuts which offers more space for investments and encourage the economic growth.

The public finance consolidation process based upon decreasing their outlays and increasing of receipts should not ignore the structural policy support oriented mainly in advocacy of externalities which are not ensured by the market mechanism functions.



The industry forms the backbone of every national economy. A relative loss of industry’s weight within the national economy should not necessarily mean its weakening. The formation of its strategic role was not determined by its decreasing role, but rather by its influence on the modernization process in the economy. At the same time, the boundary between industry and high-value-added industrial services has grown blurred. Therefore, when we talk about industrial policy in recent years, this term will also cover a range of services directly related to industry. A good third of the value-added in the European Union is generated by industry, and almost one of every three jobs is provided by manufacturing industry. It is necessary for industry to be efficient and innovatory if Europe is to return to a sustained economic growth and creating new jobs. Industrial innovation and investment are vital driving forces for progress in other important fields where the public authorities play a key role, such as education, health care and environmental protection.

The intention of the article which originated in the framework of the project VEGA 2/4022/97 was to give a brief overview on different forms of industrial policy and on the current competitiveness comprehension which is in a close relationship with the economy’s entry into its globalization phase and analyses the development on this field within the European Union and it’s member states. The article attempted to identify the forces which called (out after a more than three decades of absence) a need of creating general unified industrial policy rules.

The main European Union’s industrial policy priority is to touch up the industrial competitiveness. Competitiveness is a complex concept, much debated by economists. The OECD defines it as a capacity of businesses, industries, regions, nations or supranational associations to be exposed, and remain to be exposed to international competition and secure a relatively high return on the factors of production and relatively high employment levels on a sustainable basis. Chapter 1 also deals with theoretical aspects of the competitiveness on which the current framework of industrial policy has been based.

The core of the article forms the chapter 3, which analyzes the above mentioned industrial policy of the European Union. It will be possible to restore growth and consolidate the revival in the European Union unless they are based on competitive, efficient and innovative industry. To achieve these goal there are four priorities: to promote intangible investment, to develop industrial co-operation, to ensure fair competition and to modernize the role of the public authorities.

Although it is primarily up to businesses to ensure their competitiveness on the market, the public authorities in turn must promote the consistency of all measures to enhance industrial efficiency.

The concept of an industrial policy of the European Union was the subject of some controversy in 1970s and 1980s. Industrial policy was seen as an expression of unwanted interventionism by some member states while others considered it as the means necessary for coherent economic development. In 1990, the controversy was resolved with the adoption of the Commission’s communication on “Industrial Policy in an Open and Competitive Environment”. This communication set general guidelines for industrial policy in the European Union. The communication made it possible to reach a consensus on a policy tailored to the globalization of the markets and of the problems facing industry . In a properly functioning market economy the drive for industrial competitiveness must come primarily from businesses. The public authorities should facilitate, on the basis of a horizontal approach, the coherent implementation of all policies which can contribute to strengthening of industrial competitiveness. Through horizontal policies benefitial to all industries and economic activities, this industrial policy can promote productivity growth, innovation and technological diffusion rather than target specific sectors or technologies. It made clear that while the primarily responsibility for impro-ving its competitiveness rests with industry, the public authorities are responsible for creating a stable environment supportive for industrial activity, facilitating the required structural changes and ensure that market works properly by a co-ordinated use of all policies regarding especially the fundamental industry.

In 1992, the Treaty on European Union made industrial competitiveness one of the objectives of the Community by devoting, for the first time, a specific title to it – Article 130. In 1993 the White Paper on “Growth, Competitiveness and Employment” recommended an approach of industrial development based on global competitiveness. The White Paper set objectives and priorities designed to create the conditions for dynamic growth which will generate more jobs. These are: to exploit the advantages of the European Union, to develop the presence of the European Union on growing markets and to ensure the most favourable conditions for the industrial transition towards the 21st century in particular in the information society.

In 1994 the development of the EU’s industrial policy reached its fourth stage. Consistent with the above guidelines, the communication on “An Industrial Competitiveness Policy for the EU” defined how to attain the objectives and indicated the action needed to make the EU’s industry more competitive. The EU industrial competitiveness policy is based on a limited number of priorities which, however, are the key points on which it concentrates in order to make the EU’s industry more competitive. The improvement of the industrial competitiveness is an essential mean to create higher standards of living for the population as a whole and to achieve it by operating on markets open to international competition, namely by promoting the economic growth, creating jobs and strengthening economic and social cohesion.

Competitiveness relates to productivity and employment. Productivity expresses the efficiency with which industry uses inputs. The share of the population on employment expresses the ability of industry to make productive use of those who could contribute to rising living standards. Increasing the competitiveness of European industry is also one of the major objectives of the European Union. Nevertheless, the European industry has considerably improved its competitiveness in recent years, the situation of the European industry is still marked by higher level of specialization than the triad average on low-growth markets, but a lower level on medium- and high-growth markets. The basic premise underlying the European Union’s industrial policy is also to follow a dynamic horizontal approach smoothing the way for implementation of a consistent package of policies to make industry more competitive.


Obadi Saleh Obadi Mothana

Oil as well as petroleum exporting countries has always been a significant and interes-ting part of the world economy. There is always a vivid memory of the two oil shocks, which were linked to deep changes in world economy in the 70’ s and 80’ s. Today, as petroleum is still the primary energetic source, the oil issue attracts no less attention. On the other hand most development economists agree that variations in world prices are an important source of risk and instability for developing economies. Developing countries derive about half their export earnings from primary commodities, where the world prices are extremely volatile

The OAPEC’s members (Organization of Arab Petroleum Exporting Countries) captured a leading position in the economy of the Middle East and North Africa and play the majority role in the world energy policy.

This paper analyses not the history of oil in the OAPEC’ s member countries, but in brief the impact of petroleum industry on economic development in these countries since the period before the II. World War until the present.

The first chapter named the period before mass petroleum extraction began throughout this part of the world, the region could be divided into two major groups.

The first one included countries with agricultural resources, among them Algeria, Egypt, Iran, Iraq and Syria. These countries produced at that time basic agricultural com-modities such as cotton, wheat, wine etc.

The second group was made up from the rest region and served as strategic military bases and potential oil resources.

The second chapter covered three periods of development in the oil sector and economic growth. The first, started in the fifties, was marked with a significant development and growth in oil fields in Arabian Gulf countries. Many multinational petroleum companies worked in exploration and some of them also in mining on the basis of concessions, leases, or contracts granted by the local governments.

The indicator of the period of 60. and 70. was the unilateral decision in 1959 and 1960 made by multinational petroleum companies to decrease the posted oil prices. These decisions evoked a wave of protests in Arab petroleum producing countries and with an initiative of Iraq, Saudi Arabia and Kuwait with full support of Iran and Venezuela they founded the Organization of the Petroleum Exporting Countries (OPEC) at the Baghdad Conference of September, 10.– 14., 1960. After that the prices of oil remained at the same level until the end of the decade.

In January 1968 as a reaction to the third Israel-Arab War the Organization of Arab Petroleum Exporting Countries (OAPEC ) was created. The member countries are Algeria, Bahrain, Egypt, Iraq, Kuwait, Libya, Qatar, Saudi Arabia, Syria, Tunisia and United Arab Emirates. Tunisian membership was suspended on his own request in 1987.

The economy of Member Countries in the 1960s was dominated by agriculture in particular in the first group. However, with rising oil revenues throughout the 1960s, the governments embarked on major programmes of building infrastructure and industrialisation. Thus at the beginning of 1970s the economy of the member countries grew dramatically. Many of them raised prices and increased tax rate from 50 to 55 percent and some of them nationalized from 30 to 51 percent of Western Oil Companies concessions in 1971.

The fourth Arab-Israel war broke out on October 6., 1973 and brought about a lot of turbulence. Some days later the Arab petroleum exporting countries with support from other OPEC’s member countries proclaimed on embargo on oil exports to the Western countries, which supported Israel in the war. The most importantly for OPEC’s member countries, was that the power to control crude oil prices shifted from Western oil companies to them. The extreme sensitivity of prices to supply shortages became all too apparent and oil prices increased 400 percent in six short months. However, higher oil revenues helped the OAPEC’ s member countries to implement their vital projects, and repay their foreign debts, increase foreign exchange reserves and maintain relative financial stability.

As a consequence the oil sector in 1976 to GDP of OAPEC’ s member countries shared in average 74,4 percent (100 percent in U.A.E. and Qatar). The standard of living in the member countries measured by GDP per capita increased in average from 433 USD in 1970 to 1916 USD in 1976. However, the level of GDP per capita among member countries was quite diverse and ranged from 424 USD in Egypt to 15 323 USD in the U.A.E. for the year of 1975.

OAPEC’ s weak economic growth between 1984 and 1995 was mainly the product of two fundamental factors – collapsing oil prices and a failure to improve productivity. When oil prices declined in the mid-1980s, the member countries economies were slow to adapt. Investments dropped and the output level collapsed.

There was an effort for an empirical proof of the vital impact of the oil sector on economic development of the OAPEC’ s countries, together with attempts to evaluate it. For this purpose it is useful to apply a linear regression analysis by the method of ordinary least squares. Two approaches were used.

First, we investigated oil exports and GDP of OAPEC as a unit group, later we exa-mined the Saudi Arabia as economically the most important member of this group.

The period of an analysis covered the oil exports and values of GDP from 1970 to 1995.

The results of the analysis could be interpreted as follow:

· between values of oil exports of the OAPEC and its GDP during the period there was a strong and direct relationship. However, with every 1 million USD added in oil exports GDP probably increased by 4 million USD,

· if the extreme values of oil exports of 1974, 1975 and 1976 (the first oil shock) were to be taken into consideration and therefore random variables should be used, then the results still show a very high correlation (R = 0,961). Further more, they indicate that with every 1 million USD added in value of oil exports GDP increased approximately 3, 9 million USD,

· the third used model investigated the short period 1970– 1976. The correlation for that period was higher, which explained extremely high dependence of the GDP growth from the performance of the oil sector (R = 0,97),. However, with every 1 million USD increasing in oil export, there was an increase in GDP at cca 1,5 million USD,

· for the case of Saudi Arabia we carried out only two models and investigated the relationship between oil exports and GDP during the period of 1970– 1995. Unlike the first model (as in the second model of the unit group), in the second one we inputted a theoretic “zero variable” determined the impact of the years 1974– 1976. Both model show high correlation and approximated the increase of GDP (about 2,6 to 2,7 million USD respectively ) when the oil exports increased by 1 million USD.

Our analysis also revealed the fact, that the strong growth during the oil booms was largely based on increasing resources available for investment, but not on using them more efficiently. The huge investments in state-owned enterprises and human skills seem to be unsuited to today’s global marketplace and left a legacy of low productivity.



The current tax system have been often criticized both by tax experts and by the public. This field gives raise to many questions: what should our taxes be like? what types of taxes should be used? how high should they be? And what criteria should be applied when creating and implementing current tax systems?

The objective of this article is to summarize a basic theoretic knowledge for creating and implementing current tax systems and propose alternative solutions for improvement.

The economic theory in different stages of the society development formulated various tax systems as a theoretical basis for creating and implementing current tax systems in the market economies. There is no exact number of taxation principles, what exists is only the mutually linked chain of principles which is being changed and developed according to the new economic theory development. Single taxation principles are mutually supportive, influencing each other, and at the same time, contradictory.

The theory of the tax principles is associated with the work of Adam Smith who specified four tax principles: the principle of justice, the principle of clarity, the principle of convenience and the principle of efficiency, and these principles became the basis for the neo-liberal economic school taxation theory:

The principle of justice is a current tax theory expressed by two concepts:

· benefit principle,
· ability-to-pay.

The principle of clarity means that the tax duties must not leave any space for uncertainty, just in contrary, they must clearly define: the layer of tax payers, the subject of taxation, the tax duty, etc. so that the taxation bill is interpreted and understood equally by all subjects, i.e. by the tax creators, tax payers and by tax officers.

The principle of convenience according to A. Smith means that ways of taxation and deadlines for tax payment should be convenient for tax payers.

The principle of efficiency is reflecting the ratio between tax revenues and tax administration costs (i. e. imposition, collection and control). It means that the taxation costs should be as low as possible. According to A. Smith the principle of efficiency means that “each tax should be compiled to collect tax and leave out of the tax payers” pockets the less possible, but in excess of what flows to the state budget.

This taxation principle has currently been developed into a broad theory of efficient taxation based on the theory of the marginal benefit principle. The research of tax efficiency has been focused to the following principles:

· the ratio between tax revenues and implementation costs;
· impact of taxation to behaviour of the individuals on the market;
· so called excess burden and income and substitution effect of taxation;
· allocation neutrality of taxation.

Since the Adam Smith period, many authors have dealt with taxation principles, while the basic requirements expressed in his four famous “tax canons” have been acknow-ledges till today. The authors differ more in details of working with the above mentioned principles than in their content or principles itself. As a result we have got a set of requirements what a “good” taxation system should look like. When seeking the answer for the question: what is the “ideal” tax system? it is important to know who is creating the system and who is evaluating it. From the tax payer‘s point of view, the best tax system would be the system with the lowest burden. Loyal citizens in the democratic society would probably not refuse paying taxes, but they would probably prefer a low tax burden. On the other hand, the state’s interest is to prefer sufficient volume of tax collection and the stability in collection. As we can see, the task to create a “good” taxation system is very difficult.

It is obvious from the tax theory that many requirements laid upon the tax system are in contradiction and thus a compromise solution must be looked for. Due to that, creating and implementing tax system with all its features is very complicated.

The core of the article is formed by the analyses of the basic contradictions within the tax system:

· discrepancy among subjects within the tax system frame;
· discrepancy between the fiscal objective and the out-of-fiscal taxation objectives;
· discrepancy between the tax stability and the flexibility principle;
· discrepancy between the neutrality of taxation and the stimulation function of taxes;
· discrepancy of basic principles – the efficiency and the justice of taxation.

The notion “justice” represents mainly a category of moral, ethics, sociology, psycho-logy, politics or law. Despite that, the economists must also consider the aspect of justice – rightfulness, especially when considering the point of view of distribution and taxation. Variously defined criteria of fair distribution – derived from abilities or based on utilitarianism, equalitarianism or combined criteria used by Musgrave, only demonstrate the complexity of this issue. The notion “taxation justice” which is closely related with the fair distribution, is the notion defined by the theory and also frequently quoted, but in my opinion, not achievable in its absolute form in the real life. What is taxation justice? Taxation justice is achievable if each tax-payer contributes to the same budget for cove-ring common expenditures through taxes by means of adequate, appropriate and correct proportion. Such a definition of the taxation justice has raised the next question: how to determine adequate, appropriate and thus justified proportion of each tax-payer in cove-ring common expenditures through taxes. Despite the fact that economists have been searching for the answer for several centuries, no unique or definite answer was found. The application of the benefit principle in taxation is on one hand very reasonable and necessary, but on the other hand this principle does not allow fulfilling the distribution function of taxes which is the ability-to-pay principle compliant.

If there is a premise that the proportion of an individual in the common expenditures must be generally acceptable, we arrive at a conclusion that it should equal the benefit each individual can get from the common, i. e. public expenditures. This is the first theo-ry of the taxation justice derived from the so called benefit principle. According to this theory dated from the times of Adam Smith and his fair tax system, the fair tax system is if each tax-payer contributes by taxes according to the benefit he/she gets from the public consumption.

The tax justice, on the other hand, requires the contribution of an individual derived from his/her available income, so it is not only equitable, but seeks justice also in that it would roughly represent the same loss, which is the tax payment. In this case, we talk about the ability-to-pay principle. This approach towards the taxation justice is derived from the payment ability of an individual, which is not related with his individual public consumption, and thus fully independent and isolated from the public budget expenditures. The principle of ability-to-pay consists of two levels:

1. horizontal justice seeking an optimum basis for taxation which would in the best way and in full complexity specify the wealth of an individual, i. e. the ownership of va-rious assets, the volume of leasure time and a total situation in satisfying the needs of each individual,

2. when searching for solution for the vertical justice, we are dealing with a “taxation loss”, that means we consider a certain loss suffered by an individual by paying his taxes. As a basic criterion for such a loss is pondering the marginal benefit loss on the income after paying taxes. Further, a fair distribution of a total taxation loss among the tax-payers identifies three taxation systems:

· taxation according to the same absolute loss;
· taxation according to the same relative loss;
· taxation according to the same marginal or a total minimum loss.

The principle of taxation efficiency is considering the taxation costs generated both on the side of the tax administration and on the tax-payer’s side. We mean the direct or indirect administration cost and the so called “dead loss” (or the excess tax burden). The excess tax burden (dead loss) represents an additional cost related to the tax system thus causing its low efficiency. Its scope is identified by the elasticity of the offer, elasticity of the demand, and by the scope of the tax imposition.

Each tax system includes many contradicting, conflict areas causing deformations which should be minimized in the optimum taxation system.

There are different approaches in minimizing various deformations. The theory of the excess tax burden has brought the knowledge that one big tax deformation may inflict much serious results than a few smaller ones. It is because the excess tax burden grows with the second root (i. e. two squares with a side t are smaller than one square with a side 2t).

In addition, the tax theory and practice has brought us further knowledge indicating that if one deformation was removed it does not mean a total situation improvement, because one deformation removal can cause a partial compensation, but can also cause a deterioration or growth of further tax deformations.

The approach where all deformations are being removed is in Anglo-Saxon literature called the “first best” – the best of best. Another approach which is expecting the existence of some tax system deformations, presumingly not all of them are removable, is called “the second best” – the best under the situation. The latter approach is more real in a comparison with the previous one.

From what was said we can derive, that it is very difficult to create a tax system which would at the same time fulfil all principles and requirements, especially those contradictory ones. We have encountered the basic dilemma in creating and implementing the tax system – the dilemma of an optimum system. Optimizing the tax system means to look for and create such compromising solutions based on contradictory requirement, which would in a real tax system minimize losses caused by taxation. In other words, to create the system which would minimize the common benefit where the balance between the scope of the dead loss and inequality is reflecting the attitude of the society towards justice and efficiency.

The improvement of the current tax system in the Slovak Republic is even more difficult as it is being made under the condition of economy transition accompanied with many negative phenomena in the society. At the same time, our tax system must be customized to get approximated and compliant with the standards valid in the European Union. Upon the above mentioned theoretical ideas we can conclude that it is not easy to change the existing tax system theoretically or in the real life. However, we try to formulate some suggestions which could serve as an alternative to the current taxation approach. The suggested solutions should be understood as a contribution in searching feasible ways or solutions:

· implementation of an indirect taxation on the account of the direct taxation;
· implementation of a bulk/lump tax;
· implementation of a proportional income tax;
· implementation of presumption taxes;
· implementation of yield taxes;
· cancellation of certain taxes and transferring the yields on other type of taxes;
· simplification of the current tax system – of its legislature and the administration.

The suggested alternative solutions are the contribution for the discussion which should become a source of proposals for experts dealing with the tax legislation and improvement of the Slovak Republic taxation system.



After 1990 apartments have become highly priced property and the state was very liberal regarding dwelling issues and transferred all responsibilities exclusively to the citizens. They have four possibilities how to solve their housing problem: to use own funds, or housing savings program, or some support from the State Dwelling Development Fund, or bank loans covering also mortgage loans.

The first step of the implementation of a western system in the Slovak Republic was made by establishing of construction savings houses, i. e the Prvá stavebná sporite¾òa, a. s. (the First Construction Savings House) which have acquired a dominant position on the market, and the VÚB Wü stenrot, a. s. The state support was given in two ways: taxes and subsidies. There were many arguments casting doubts on the state premium efficiency or on the existing mechanism. The State Dwelling Development Fund mentioned above, could not satisfy all applicants and the loans distribution mechanism did not always correspond the intentions initially declared.

Mortgage loans gained some patronizing when the state support for mortgage loans was introduced. It was, for example the premium interest rate applied for mortgage loans from the state budget. In comparison with the State Dwelling Development Fund this measure can be understood as a system measure. The interest rate subsidized by the state has lowered the price of loans and proved to be more affordable for clients. This step, at the same time, has supported the financial markets, and especially helped to develop the capital market which can bring recovery for the economic situation as a whole. The inte-rest from the investors’ side to purchase mortgage notes was regulated by the lawmaker through the amendment of the Act No. 286/1992 Coll. on the income tax, in later amendments, which stipulates that all proceeds from mortgage notes are relieved from the income tax which became effective from 1 April 1999.

The first bank in Slovakia, which was by the National Bank of Slovakia assigned the right to process mortgage loans was the VÚB, a. s. (The General Credit Bank) and it happened in June 1997. At this date the VÚB subsidiary was established with the charge of providing mortgage loans. But when the banking law was amended and when the Measures of the NBS was issued stipulating the value of the capital to represent SKK 1 bn, it was decided that this product should be provided by the VÚB, a. s. and its Division of the mortgage banking.

The mortgage loan can be provided to an individual entity, for purchasing, building, reconstruction or maintenance of a tangible property within the country, and also to be provided to a corporate entity for business purposes. This type of loans is very popular all over the world, although, each country maintains its own system which is also linked with the issuance of mortgage notes. In the continental Europe the German model has been taken as the most important and fully compliant for the needs and conditions in the Slovak Republic and that is why the cooperation with German experts created the legislative frame for re-introduction of mortgage loans.

Mortgage loans are closely connected with the issuance of mortgage notes. The basic condition is the existence of a functional capital market. An important role is also played by such economic factors as the interest rate offered on the money market, or the comparable securities yield on the capital market.

The German system is considered to be the most secure, especially due to mortgage loans and mortgage notes dependency.

The basic law No. 21/1992 Coll. on banks in its latest amendments governing the mortgage banking defines the mortgage loan as a long-term loan with 5 years maturity at the shortest, which is guaranteed by the mortgage lien for the domestic tangible property. The long-term feature required that a special attention was paid to the guarantee evaluation. In other countries, the mortgage loans are usually to be paid back within 30 years and this term is also regulated by the legislature. The security of granting mortgage loans is ensured in such a way that the value of the tangible property shall be declared by the bank, while only permanent qualities of the tangible asset are taken into consideration and its yield achievable during the course of employment for its owner. The given tangible asset must not carry any burden or other lieu (except for apartments transferred following the law no. 182/1993 about the transfer of apartments from the municipal ownership to a user on behalf of other users and the lieu arranged in favour of the housing savings house or the State Fund of Housing Development in the form of an onus. The importance of the onus is upon the bank discretion, because, for example if it is an onus concerning the right of transfer which was recorded on the ownership document, the problems will not occure at the purchase of the tangible property which can be the case if the onus is linked to life of a person in the tangible property. A commercial bank if paid due attention can avoid possible problems with claiming loan repayment in case if the mortgager is not able or willing to repay the loan. As a precaution the commercial bank can provide a loan up to 60% of the lieu value. The threshold of 60% is gives the bank enough security regarding price changes on the tangible market.

The bank when reviewing acceptability should consider the ability of the object for sale if the loan is not being repaid. Each bank should have its own table or a chart showing a percentage of accepting based on the bank’s own experience and internal rules. Due to that it is upon the bank to determine its own rules what cannot be taken as a loan collateral.

The commercial bank should determine its criteria for selection of authorized experts, while adhering to the respective legal standards as e.g. the Decree of the Ministry of Justice of the Slovak Republic No. 263 from 26 August 1996 executing the law No. 36/1967 Coll. on experts and interpreters. The bank according to its needs may amend other conditions to the above mentioned legal conditions. It seems to be practical and generally adopted that a respective bank would organize training for its business associates, and also the bank will develop its own procedure for evaluation of real estates.

In evaluating a due attention should be paid to the fact that the legislature supports with its legal weight only to an expertise evaluating in prices, which are different from current market prices of real estates. For the bank purposes current prices are hardly applicable since they do not express a full complexity of an evaluated object as this is only a simple quantitative aspect applying outdated prices where a qualitative aspect is neglected.

A lawmaker is solving this issue by the appendix to the methodical decree dealing with an expert’s report regarding a general value of real estates thus allowing to apply a calculation method which is close to the objective price. According to this appendix an expert would prepare his expert’s report only on request of a legal entity based on an agreement between them. In other cases may the expert’s report only be taken as an attachment of the expertise. For a mortgage bank granting loans mainly to individuals, it means that a legal expert is bound by the law for preparing the expertise, but not to prepare the expert’s report.

For the mortgage bank purposes it is not applicable to use administrative, outdated pri-ces, and that is why it is recommendable for the bank to point to such fact in its methodology and to bind legal experts to prepare also their expert’s report stating conventional prices.

What methods are used for evaluation? Around the world the most often used are cost (substancial), income yield and comparable methods.

Each of the above referenced method has its own specifics. The selection of a particular method in real life should be decided upon a type of the tangible asset and by the pricing methodology which is a part of the application for the licence.

The cost methods are based on evaluation of single building and technical features of the tangible asset resulting in the material value. In Slovakia it is typical that a reproduction purchase value and wear and tear value is specified.

The method of income yield value is used for land with buildings on it, where lasting income yields are important, e.g. for rental houses and real estates for business purposes.

The comparative method can be applied only if there exists a sufficient number of comparable objects. Comparable values are to be derived from a permanent contact with the tangible market information.

The following are the constraints when evaluating real estates:

1. non functioning capital markets,
2. investors are not interesting in mortgage notes,
3. high interest loans from loans,
4. tangible asset prices.

The frozen capital market and the transfer for money markets are impacted by the general economic situation. The lack of funds have been reflected by high interest rates which again are closely tied to the situation on the market.

The statement that the SR legislature does not always match the goals of the parties involved is true, but not helpful. Only a detailed knowledge of the legislature framework and an accurate problem definition regarding the economy and the law should be the way how to progress.

An improved performance of the Real Estates Registry, how long does it take to regis-ter, implementing the on-line system, entry of commercial bank into the registry system could prevent cases when one tangible asset was sold more times.

In Germany, the situation is substantially different. The price of a sold asset must be reported to the tax office as well as to the Real Estates Registry and these should pass the information over to the Committee of Legal Experts. The duty to inform the above refe-renced institutions gives a guarantee and give assistance for evaluations. The records in the Real Estates Registry and in the Land Book Register are considered with a high credit.

Generally, we can characterize white places in the real estates evaluations as follows:

In Slovakia, there is no institution for gathering information on the sold tangible asset prices or an info database which could be at hand for legal experts when specifying a tangible asset price.

1. The obligation to report the real estates sold or purchased prices is not requested by a law, it is left for the parties involved discretion.

2. The cooperation with realtors is developing slowly and their information in many cases has a low credit.

3. The performance of the Real Estates Registry and the information technologies used do not meet European standards.

4. On-line system contact between the Real Estates Registry and commercial banks does not exist and commercial banks are placed in an uncertain situation.

5. The banking legislature is lacking general decrees governing evaluation of real estates for mortgage loan purposes.

Solutions on the above mentioned issues would help to find solution also for the most important issue of the mortgage banking development, and at the same time it, would also improve the housing policy in Slovakia, which the Slovak government promised in its programme declaration stating a note about creating economic environment for building 14 000 apartments in average, about improvement in the utilization of a complex system of economic tools especially cheap loans and tax relieves.

The Dark Side of the Moon: Shadow Economy in Ukraine


This work is dedicated to the study of reasons of evolving and consequence of development of shadow economy in Ukraine, its analysis and ways of overcoming it. The essence and structure of this phenomenon have been analysed, some economy branches in regard of the shadow volumes within them. The main generally accepted methods of shadow economy volume calculation have been described and the stable interdependency method was used to calculate these figures in regard to Ukraine.

The situation in Ukraine is such that the development of shadow economy acquired significant scope and cannot be ignored. Different experts evaluate its volume from 30 to 100% of GDP. Thus this problem is a compound of the economical security problem in Ukraine.

Shadow economy is not an acquisition of independent Ukraine. Branched shadow sector has always been inherent in the economy of ex-USSR. Experts evaluate the shadow sector in 1980s was above 20% of national income [3, s. 5]. Economists state that before the collapse of the USSR agriculture was in the first place among all national economy branches in regard to shadow economy volume (23 billion rubles per annum). The second place was possessed by trade and catering (17 billion rubles p. a.), the third and forth one – construction and industry (12 and 10 billion rubles accordingly). During the last years of USSR existence, shadow sector in construction was developing at especially high rates (it grew 65 times during 1965– 1990) and transport and communication (40 times, correspondingly). In agriculture and industry the growth was 30 times [3, s. 5].

The nonmaterial sphere was the leader in the shadow economy sector (about 1/3 of its total volume). The shadow economy share in consumer services reached approximately a half of the total consumer sales. The second by its size in the field of nonmaterial sphere was recreational services branch: its volume was about 2.7– 3.2 billion rubles. The third place was occupied by the medical services branch (accordingly 2.5– 3 billion rubles) [3, s. 5].

Despite the figures above, it should be mentioned that in the Soviet times shadow sector was concealed and it was regarded as non-existing since the socialist economy was a planned one. Thus, the question of shadow economy study has never been risen so sharply in USSR as against to Western countries. This is why we have not developed a single methodology of shadow sector calculation. Besides, the experts whose calculations were cited above almost never referred to the methodologies they used.

The transition of Ukraine to the socially oriented market economy and law abiding state not only did ruin, but, vice versa, increased the scope of shadow economy. As of today, the only factors that changed are the structure, forms, and approaches to the economic activity. When compared to the percentage 20 years ago, mentioned above, the headcount of the unofficial sector has increased 3 times, or even more.

The main reasons for the strengthening of this phenomenon could be defined as follows:

· according to the transformation theory the collapse of any system at first multiplies the effects of its main features;
· even though the old communist structures broke-up the social class, involved, still remained.

Analyzing shadow economy in Ukraine, one can come across two extremes. First, it is usually associated with criminal economy, organized crime, and mafia. Second, there is an urge toward setting it as an example of efficient economy under tough economic conditions. There is a bit of truth in each one extreme. The limits to these extremes is the attempt to present shadow economy as a uniform phenomenon. In fact, shadow economy is a perplexed combination of diverse types of production relations. In addition, it is sometimes not easy to distinguish between “shadow” and “light” economic processes because of the high level of integration, as it is in reality.

The Consequences of the Development of Shadow Economy if Ukraine and the Ways of its Overcoming

The carried out analysis evidences that the shadow economy in Ukraine started to threaten economical and national security of the state. It significantly affects all spheres of economical activity, political and social life in Ukraine and unlike legal (official) economy is dynamically changing over the last years. Today, the concept of shadow economy became one of the symbols of our time.

One of the motives of activity in shadow sector is enrichment by means of bilking from taxes. The main result of such activity is a yearly reduction of inflow to revenue part of the state budget and thus limitations in the state’s ability to provide social security for the most vulnerable strata, lack of funds for active support of education, culture, humanization of social relations and other activity lines. The mass bilking from taxes that acquired unprecedented scale is not the least cause of the crash of science, culture, and education sphere.

The increase of shadow economy and its further integration into the official economy causes several negative social aspects:

· worse control over the economy;
· increase of unexplained differentiation of life standards of population;
· low morale and law ignorance;
· creation of negative image of our country on a world level.

The problem of a big Shadow economy share will never be solved without thorough, result-oriented actions, directed at removal of the obvious conditions, which attract people into shadow.

A special complex state level program has to be developed in order to fight shadow economic activities and for localization. The program can be based on the following elements:

· complex tax reform, that would increase tax base simultaneously with lowe-ring of tax rates;
· preserving of mild ranges personal income tax;
· differentiated approach to the qualification of faults, both criminal and unintended; improvement of the system of punishment of the guilty;
· improvement of the system of return by means of court of bad debts, and debts for unaccomplished agreements;
· reform of accounting principles in terms of simplification and unification [3, s. 16];
· creation of more favourable than in other countries investment climate in order to attract financial resources;
· adoption of laws that would improve the protection of private property, commercial and bank privacy, law protection of the companies;
· adoption and realization of the program of legalization of shadow capital, which does not have criminal background (including promise of amnesty for the capital brought back from abroad);
· concentration of law enforcement structures on localization of organized crime and criminal activities, as well as protection of property, economic rights, and lives of citizens;
· keeping foreign trade as free as possible;
· forced integration of Ukraine into the world economic relations, which will not only help to restructure the economy and create market relations, but also to cut shadow capital from bureaucracy and destroy bureaucratic monopolies;
· cutting of expenses of regulating the activities of the companies;
· inflation reduction;
· reduction of brackets between gross and net salary by means of participating of employees in social deposits and cutting the employers’ payments by the corresponding amount;
· limit social security services to basic support, in order to decrease levies;
· creating and financing of mobile research teams that would research shadow economy in all its aspects.

The implementation of these actions will localize shadow economic activities and shadow capital behind them for the use in national economy. The narrowing of the scope of shadow economy is possible only by means of step-by-step complex reforming of social-economic relations and improvement of existing legislature.

* * *

This work deals with the study of causes of appearing and circumstances of development of the shadow economy in Ukraine, its analysis and the ways to eliminate it. The essence and the structure of this phenomenon have been analysed as well as some economy fields regarding the shadowisation volumes in them. There have been sketched the most common used principles of calculating the volumes of the shadow economy. Its volumes in Ukraine have been calculated by the method of constant relations.



The treatise which is backed by the results of a systematic prognostic research being accomplished at the Economic Institute of the Slovak Academy of Sciences (EU SAV) en-deavored a global evaluation of the economic development in Czechoslovakia in the 80s.

The paper in its beginning highlighted chiefly the fact that after grave shocks in the world economy, which had fiercely revealed low efficiency or structural and adaptation weaknesses of the Czechoslovak economy, the managing center entered a new decade in 1980– 1990 with extensive intensifying and restructuring objectives. The materialization of the objectives should have brought a new quality in the economic growth representing a real road leading to resources which were less demanding, ecologically “economizing” and regarding the consumption more development oriented.

The analyses of the achieved outcomes of that effort is preceded by the idea that the period was typical for big resolutions, but also untiring illusions, ideological prejudices and conceptual stereotypes, which ex ante cut off the chances for any success of the above referenced intensifying goals. A key role amongst all those visions was played by the vision that a new strictly efficient logic can be introduced into the economic develop-ment without any profound systematic changes, only by means of appropriate central de-cision-making and economic indicators. According to the above implied basic approach the Czechoslovak economy “was working” also in the 80s with no profound systemic regime changes, and thus its reproduction features were still determined by the cost mechanism, which together with the effects of the resources-balancing spiral consistently maintained the extensive character of the economic development.

The above mentioned system effects were even more reinforced by the fact that the economic policy in 80s did not function in its fullness, consistently enforcing the intensifying concept, but mainly using a short-term pragmatic tool of “putting issues out of fire” or in other words “robbing Peter to pay Paul”. In addition, and quite naturally, this way oriented economic policy was rather quickly changing it essential accents according to what problems have been urgent in a particular time.

The analyses made in connection with a complete prognostic research confirmed that in a given system and the economic-and-political framework the Czechoslovak economy evidently was loosing its overall performance and especially its output since the second half of 70s. Both the needs of individuals or society were satisfied under higher costs, while the turnovers were blank and the total labour proportion in semi-product was too high. (The production consumption/GDP represented 2/3 ratio, and that would even for a country with more resources very difficult road to follow for a longer period of time, not to say about the former Czechoslovak Republic). Due to such development trend the Czechoslovak economy in the researched decade did not board the total intensification train, but started the phase of rather too much ripe extensive development and significantly exceeded the inflexion threshold followed by the anti-efficiency break of the majority of self-deciding economic relations.

Among the core features of the negative process were found: anti-productive break of a basic “garde” of the overall economy, which was continuously still more and more working to feed itself, its own self-motion and the growing economic turnover did not improve satisfaction of the inhabitants as for their needs.

For many years the extensive, “additive” way of investment, without liquidation and renovation of outdated, obsolete equipment and technologies brought about bad hypetrophy of a technical average or below average level production capacities. This process in the 80s overcome its inflexion point, behind which the observed negative tendencies got up to a higher extreme of anomalous economic, or better say, anti-economic relations. (Among them, the total life usage and average age of the assets and liabilities regarding production resources were continuously getting closer.) A low level of the accumulation process, cuts on imports and deteriorating the inner structure of imports, cuts in licence purchases – these factors represented the basic aspects which were in the researched period responsible for stagnation and in some industries also for the drop in the technical level of their economic activities. Such negative development strengthened the tendency for decreasing the average complexity of used human labour, and in such a way in Czechoslovakia in the 80s the substitution inversion was still more and more dominant. The drawbacks in the technical level and efficiency of the production apparatus were substituted by increased volume of human labour. (Almost 1/3 of the nominally recorded economic dynamism resulted in the extensive growth of employment.)

Stagnation of the technical production level, the dramatic lack of inherent artificial intelligence and computerization of economic activities – this all must inevitably weaken the position of the CSSR in the world economy. In the course of almost two decades the real exchange relations regarding foreign trade decreased from the start level of 100 (year 1970) down to the level of 68,5 (year 1987). At the same, time the position of the CSSR degenerated not only in relation to the developed capitalist countries, but also in comparison with the RVHP (Council for Mutual Economic Aid) countries.

Another breaking point in the Czechoslovak economy development happened when the growth rate started gradually to decrease, based on the extensive reproduction logic, and when the increase of foreign debt in convertible currencies became still more evident.

This situation was further declined by the fact that in relation with the socialist countries the CSSR foreign currency assets were growing fast and at the same time bad debts against under-developed countries were increasing and were stubbornly renewed by the state loan policy.

Due to this vast immobilized economic resources the Czechoslovak economy at the end of 80s was found in the situation, where it was not feasible to provide satisfaction for common needs of inhabitants, or to ensure appropriate quality and quantity of thes needs, or to renew natural and human resources, material and technical conditions for its own future development. Since the break of 70s and 80s the living standard in the CSSR practically stagnated and the country was still more and more lagging behind the developed countries all over the world.

Burdens and constrictions which were piled up by the Czechoslovak Republic during years could not been compensated during the previous decade in another way, but crea-ting generally favourable, supportive society-and-economic environment. To overcome the above identified various handicaps demander mainly to create the best conditions promoting business activities and invigorating the initiative of people as citizens in their own country. There was an urgent need to set free their creativity and initiative from the institutional-and-organization barriers, consistently support all changes enabling to overtake and transform all inspirations from the outward economic environment. At the end of 80s the Czechoslovak economy had an option: deciding for an economic regress and lagging behind, or for a political-and-social economic reform full of conflicts, but heading up to a higher development level.