Transition economies: how appropriate is the size and scope of government?

This paper addresses changes in the size and scope of government in 24 transition economies. The article finds that although many governments have retrenched in terms of public expenditures in relation to GDP, as well as public employment as a share of population, some indicators in the study show that the level of government remains high. This is reflected in: rising indebtedness; a heavy regulatory burden; prevalance of noncash transactions.

The article recommends, that if governments wish to evolve effectively within an increasingly market oriented economic situations then:

• more attention needs to be paid to rationalizing the scope of government in transition economies than to expenditure cuts per se
• ongoing efforts to reform intergovernmental fiscal relations must also address the issue of the overall size and scope of governments at all levels. Local tax bases need to be exploited fully through an adequate incentive structure, and coordination among local governments should be promoted to ensure the provision of regional public goods and foster private sector activity
• the political economy determinants of the size and scope of government also needs to be addressed. Better understanding of the political economy constraints to reform will guide policymakers in the design and implementation of social policies
• strengthening budgetary institutions, particularly in the areas of tax administration and expenditure management and control, will help limit and improve the scope of government