Contents -- Acknowledgments -- Authors and Contributors -- Abbreviations -- Foreword -- 1. Fiscal Policy and Economic Growth in Europe and Central Asia: An Overview -- Do Government Size and Fiscal Deficits Matter for Economic Growth? -- How Can Governments Improve the Efficiency of Public Spending? -- How Can Governments Reduce Distortions in the Tax System? -- Conclusion -- Note -- PART 1. Public Finance and Economic Growth: Trends and Interrelationships -- 2. Public Finance Systems in Transition Countries -- Fiscal Stabilization and Debt Dynamics -- Patterns of Fiscal Adjustment and Public Spending -- The Size of Government -- Composition of General Government Spending -- Structure of Revenues in ECA -- Conclusions -- Annex 2A. Tax Performance: A Regression Model -- Notes -- 3. Do Public Finance Systems Matter for Growth? -- Success in Fiscal Consolidation -- Fiscal Deficits -- The Size of Government -- The Composition of Expenditures and Structure of Taxes -- Creating Fiscal Space -- Conclusions -- Annex 3A. Determinants of Growth in Transition Economies, 1992-2004 -- Econometric Evidence -- Annex 3B. Composition of Public Expenditures, Structure of Taxes, and Growth in ECA Countries, 1995-2004: Econometric Evidence -- Annex 3C. Calculating a Sustainable Primary Fiscal Balance in ECA Countries-A Note on Methodology -- Notes -- PART 2. Selected Issues in Public Expenditure -- 4. Infrastructure -- Infrastructure and Economic Growth -- The Legacy of Transition and Recent Performance -- Financial Sustainability: Hidden Costs and Priorities for Structural Reform -- Toward Better Management of Public Investment in Infrastructure -- Building Partnerships with the Private Sector -- Conclusions -- Notes -- 5. Education -- Education and Economic Growth -- Public Education Spending and Education Outcomes -- Enhancing the Efficiency of Education Spending.

The Intrasectoral Allocation of Public Spending -- The Role of Private Spending -- Governance -- Conclusions -- Notes -- 6. Health -- Health Outcomes and Economic Growth -- Models of Health Care Financing -- Patterns of Health Care Spending -- Health Care Spending and Health Outcomes -- Policy Reforms to Enhance Efficiency and Governance -- Conclusions -- Notes -- 7. Pensions -- Characteristics of ECA's Pension Systems -- Fiscal Implications -- Social and Poverty Implications -- Options for Reform -- Two Strategies for Reform -- Conclusions -- Notes -- PART 3. Selected Issues in Taxation -- 8. Flat Income Tax Reforms -- The Flat Income Tax -- Flat Income Taxes in ECA -- Revenue Effects of Flat Tax Reforms -- Changes in Tax Structure -- Simplicity and Compliance -- Conclusions -- Annex 8A. Cross-Country Analysis of Flat Tax Reform -- Notes -- 9. Taxation of Labor -- Labor Taxes in ECA -- Labor Taxation, Employment, and Economic Growth: Theory and Evidence -- Policy Options -- Annex 9A. Labor Taxes in ECA, 2006 -- Annex 9B. Results of Regression Analysis -- Notes -- References and Other Resources -- Boxes -- 1.1 A Framework for Analysis -- 2.1 Data Sources and Issues -- 3.1 Fiscal Deficits, Private Savings, and Economic Growth -- 3.2 Government Size and Economic Growth: Empirical Analysis to Date -- 3.3 Why Good Governance Could Mitigate the Negative Impact of Big Governments: Some Simple Analytics -- 3.4 Public Expenditure Composition, Tax Structure, and Economic Growth: Empirical Analysis to Date -- 5.1 Poland: The First Decade of Capitation Financing in Education -- 5.2 Chile and Privatization -- 5.3 A New Beginning for Georgia's University Admissions -- 6.1 Albania: Social Health Insurance -- 6.2 Georgia: High Out-of-Pocket Spending -- 6.3 Introducing Mixed Payment Systems -- 6.4 Chile and Korea: Improving Governance.

8.1 Efficiency and Equity Considerations of Flat Tax Reforms -- 8.2 The Distributional Impact of Tax and Social Benefit Reforms in the Slovak Republic -- 8.3 Russia's Flat Tax Reform -- 8.4 PIT and CIT Loopholes Closed in the Slovak Tax Reform -- 9.1 Taxes on Labor: Concepts and Definitions -- 9.2 Chile: Social Security Reform and the Incidence of Payroll Taxation -- 9.3 Tax Wedge and Employment Measurement Problems -- 9.4 Reduction of the Tax Wedge in ECA -- Figures -- 1.1 Primary Fiscal Balance of General Government, 1996-2005 -- 1.2 Total Public Sector Spending, by Country in ECA, 1995 and 2005 -- 1.3 Functional Composition of Primary Expenditures, 2004 -- 1.4 Total Hidden Costs of Power Sector, 2000-2005 -- 1.5 Imputed Learning Scores and GDP Per Capita, 2000 -- 1.6 Total Health Expenditure and Per Capita GDP -- 1.7 Changes in Personal and Corporate Income Tax Revenue Collection after Flat Tax Reforms -- 1.8 Tax Wedge on Labor, ECA and Selected Comparator Countries, 2006 -- 2.1 ECA Regional Growth Performance, 1990-2005 -- 2.2 Fiscal Balance, Total Revenues, Total Expenditures, and Primary Expenditures in ECA, 1996-2005 -- 2.3 Gross Public Debt as a Share of GDP and Tax Revenue, 2005 -- 2.4 Primary Fiscal Balance, 2005 -- 2.5 Public Sector Debt, Debt Service, and Average Public Debt Maturity for Selected Emerging Market Economies, 2006 -- 2.6 Primary Expenditure Cuts and Initial Fiscal Imbalance -- 2.7 Primary Spending, ECA and Other Middle-Income Regions, 1994-2005 -- 2.8 Total Public Sector Spending, by Country in ECA, 1995 and 2005 -- 2.9 Regional Primary Public Expenditures and Per Capita Incomes, Average 2000-04 -- 2.10 ECA Subregional Economic Composition of Primary Expenditures, 2004 -- 2.11 ECA Subregional Functional Composition of Primary Expenditures, 2004 -- 2.12 Percentage of Population Age 65 and Over, 2000 and 2025.

2.13 Trends in the Public Wage Bill in ECA, 2000-05 -- 2.14 Trends in Capital Spending in ECA, 2000-05 -- 2.15 Public Sector Wage Bill in ECA Countries, 2004 -- 2.16 Public Education Spending in ECA Countries, 1995 and 2004 -- 2.17 Public-Sector Health Expenditures in ECA Countries, 2000 and 2004 -- 2.18 Total General Government Revenues, 1994-99 and 2000-04 -- 2.19 Regional Variation in Revenues, 2005 -- 2.20 Correlation of Revenue with Per Capita Incomes, 1995-2004 average -- 2.21 Composition of Tax Revenues, 1995-2004 -- 2.22 Trends in Tax Effort Indexes in Turkey -- 2.23 Trends in Tax Effort Indexes in the Slovak Republic -- 2.24 VAT Revenue Productivity, 2004 -- 2.25 Corporate Income Tax Revenue Productivity, 2004 -- 2.26 Tax Effort Index versus General Government Balance, 2004 -- 2.27 Tax Effort Index versus Debt, 2004 -- 3.1 GDP Growth Before, During, and After Fiscal Adjustments in ECA, 1996-2004 -- 3.2 Fiscal Balance and Economic Growth in ECA Countries, 1989-2005 -- 3.3 Uncertainty as Perceived by Managers and Fiscal Balance in ECA, 2005 -- 3.4 Fiscal Balances and Growth in ECA Countries, 1992-2004 -- 3.5 Public Expenditure and Fiscal Balance in ECA Countries, 2002-05 -- 3.6 Economic Growth and the Size of Government by Relative Government Effectiveness in ECA Countries, 1992-2004 -- 3.7 Potentially Growth-Promoting Expenditure and Fiscal Space in ECA Countries -- 3.8 "Productive" versus "Unproductive" Expenditure Allocations in ECA Countries, Average, 2002-04 -- 3.9 Health Care Performance Compared with Public Spending Per Capita, Average, 1995-2004 -- 3.10 Education Performance Compared with Public Spending Per Capita of School-Age Population, Average, 1995-2004 -- 3.11 Efficiency Gaps in Health Care and Education and the Quality of Governance -- 4.1 Reliability of Infrastructure and Energy Services in ECA in Early 2000.

4.2 Total Hidden Costs of Power Sector, 2000-05 -- 4.3 Nonrevenue Water in ECA Countries, 2002 -- 5.1 Secondary Net Enrollment Rate and Per Capita GDP, 2000 -- 5.2 Tertiary Gross Enrollment Rate and Per Capita GDP, 2000 -- 5.3 Mean Years of Education and Per Capita GDP, 2000 -- 5.4 Correlation Between Imputed Learning Score and GDP Per Capita, 2000 -- 5.5 Correlation Between Secondary Net Enrollment Rate and Public Education Expenditure as Share of GDP, 2000 -- 5.6 Correlation Between Tertiary Gross Enrollment Rate and Public Education Expenditure as Share of GDP, 2000 -- 5.7 Correlation Between Imputed Learning Score and Public Education Expenditure as Share of GDP, 2000 -- 5.8 Learning Scores Efficiency Frontier: Developing and Transition Countries Sample -- 5.9 Learning Scores Efficiency Frontier: Developing, Transition, and Developed Countries Sample -- 6.1 Percentage of Total Public Expenditures on Health Financed by Taxes and Social Health Insurance, 2004 or Latest Year Available -- 6.2 The Correlation Between Per Capita GDP and Per Capita Total Expenditure on Health, 2004 or Latest Year Available -- 6.3 Out-of-Pocket Spending as a Percentage of Total Health Expenditures, 2004 or Latest Year Available -- 6.4 Infant Mortality and Public Expenditure on Health, 2004 or Latest Year Available -- 6.5 Health Performance Index and Public Spending on Health, ECA and Comparator Countries, 2003 or Latest Year Available -- 6.6 Input Efficiency Score for Life Expectancy at Birth -- 6.7 Input Efficiency Score for DPT Immunization -- 6.8 Hospitals per 100,000 population, 1990 and 2004 (or latest year available) -- 6.9 Acute Hospital Beds Per 100,000 Population, 1990 and 2004 (or latest available year) -- 7.1 Pension Spending in ECA and Comparator Countries, 2004 or Latest Available Year.

7.2 Old-Age Populations in ECA and Comparator Countries, 2004 or Latest Available Year.