Czech fiscal policy: One size fits all?

This paper provides an overview of recent Czech fiscal policy. The Czech Re public is often portrayed as a country relentlessly pursuing "free-market" economic policy and strict fiscal management. However, as we show, the shar e of state sector in the economy remains large, especially if one takes int o account various off-budget operations of the state. We have identified what is arguably the main weakness of the Czech fiscal p olicy: the rapidly rising share of social spending and the correspondingly high contributions to social-security payments. The stability of fiscal pol icy is further threatened by the evolution of off-balance-sheet transaction s. The Czech government does not effectively address this "hidden debt", an d there is very little understanding and concern and indeed information and public knowledge about the contingent liabilities. The fiscal outlook - ba sed on the actual commitments - points to mounting budget deficits that wil l have to be increasingly covered by privatization revenues. Notwithstanding these inconsistencies, the fiscal policy of the present Soc ial Democratic government has been submitted to harsh economic and politica l realities. This has led to a bizarre but predictable outcome. Right-of-ce nter politicians in the country recognize that "laissez-fare" is a fantasy, and left-leaning politicians recognize that heavy government intervention is a fantasy of another sort.