H5 - National Government Expenditures and Related PoliciesReturn

The main objective of this paper is to fill a critical gap in the literature by analyzing the effects of decentralization on the macroeconomic stability. A survey of the voluminous literature on decentralization suggests that the question of the links between decentralization and macroeconomic stability has been relatively scantily analyzed. Even though there is still a lot of room for analysis as far as the effects of decentralization on other aspects of the economy are concerned, we believe that it is in this area that a more thorough analyses are mostly called for. Through this paper, we will try to shed more light on the issue notably by looking at other dimension of macroeconomic stability than the ones usually employed in previous studies as well as by examining other factors that might accentuate or diminish the effects of decentralization on macroeconomic stability. Our results found that decentralization appears to lead to a decrease in inflation rate. However, we do not find any correlation between decentralization with the level of fiscal deficit. Our results also show that the impact of decentralization on inflation is conditional on the level of perceived corruption and political institutions.

The paper examines whether redistribution policy is bad or good for economic growth by analysing government expenditure on the welfare state in the old and new post-socialist EU countries from the mid-1990 to 2008. Due to the differences among countries fixed effect is included in the model using panel data. We find negative association between the mean values of expenditure on the welfare state in several time periods and the subsequent GDP growth rate for EU-25 and also for the subsets (EU-15 and EU-10) of the EU countries. When taking into account explicitly the government budget constraint and applying dynamics the same conclusion can be drawn for EU-25. Welfare state expenditure has statistically significant negative coefficient confirming the postulated hypothesis of a negative impact on the GDP growth rate.

The article tries to demonstrate important links between social structure and social policies. The post-communist state interferes more than other governments into social structure and supports strong actors. This hinders expansion of the main actor of a successful transition - the middle class. Its stagnation or adverse development causes that the social structure (disintegrated, polarized and unstable) implicitly becomes the main social problem itself which generates other "minor" problems. The middle-class perspective frames many tensions and there can be exhibited four of them: between pensioners and economically active; between working and non-working poor; between the middle class and other groups and between the entrepreneurial and white-collar middle class. Social cohesion cannot be reached by redistribution only. Redistribution must remain within restricted limits in order not to hinder social change by distorting individual motivation and personal effort. The delineation of such limits should also involve consideration of the social structure.