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Discussion Paper Details

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Title: Government Subsidies to Enterprises in Central and Eastern Europe: Budgetary Subsidies and Tax Arrears

Author(s): Mark E Schaffer

Publication Date: March 1995

Keyword(s): Central and Eastern Europe, Financial Distress, Subsidies and Tax Arrears

Programme Area(s): Financial Economics

Abstract: This paper analyses the distribution and allocation of budgetary subsidies and tax arrears in Central and Eastern Europe. Budgetary subsidies are relatively small in aggregate, highly sector specific, and the manufacturing sector receives few of them. Tax arrears, by contrast, are a significant problem, and the paper argues they can be considered a form of government subsidy. Data for the various Visegr�d countries suggest that the total stock of tax arrears is on the order of 5- 10% of GDP, the annual flow of tax arrears is around 2% of GDP, and the annual flow of tax arrears to the manufacturing sector is around 1% of GDP. Survey data from Hungary and Poland show that tax arrears are concentrated in a small number of low profitability firms; the main correlate of tax arrears is low profitability; and the flow of new tax arrears is the main financing that enables these very unprofitable firms to continue to operate.

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Bibliographic Reference

Schaffer, M. 1995. 'Government Subsidies to Enterprises in Central and Eastern Europe: Budgetary Subsidies and Tax Arrears'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=1144