Budget Deficit in Poland – the Sources of Growth

Abstract

Highly imbalanced public finances are indicated as one of the major problems in the Polish economy. This paper is an attempt of a case study dealing with the fiscal policy evolution in Poland between 1995 and 2004. It aims at examining the course of the budget deficit and its determinants, paying special attention to the analysis of the factors that contributed to the considerable growth of budgetary deficit in the years 2001-2002.

The analysis discusses several stylized facts characterizing the national budget development in Poland in the period 1995-2004. Throughout the examined period budget revenue almost did not change in real terms, excluding the years 1999 and 2003, when it grew. In real terms the growth totaled 10.7%. Expenditures showed a similar stability until the year 2001 being the first year of their strong growth. As a result, the 2004 expenditures were more than 20.4% larger than in 1995. In addition, in the time span 1995-2004 both revenue and expenditure dropped in relation to GDP, by 3.9% of GDP and 2.3% of GDP, respectively. In the analyzed period expenditures clearly expanded in three sections, which explains over 88% of the total expenditure increase in real terms. These sections are social insurance, education and healthcare.