Evaluating Government Policy in Transition Countries

Abstract

The paper examines neoclassical measures to evaluate government policy in transition countries: 1) marginal factor prices and the return to capital, 2) growth rates and taxes, 3) inflation rates, and 4) debt/GDP ratios, related to international real business cycle and endogenous growth theory. It further postulates a way to consider the debt/equity position of the government, related to a risk-yield framework. This gives a potentially more useful indicator than the debt/GDP ratio alone. Empirically these measures are examined in an illustrative way for a set of Central European countries plus Germany and the US for comparison, for the period of 1990-1998, using an internally standardized data set from the on-line International Financial Statistics.