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2010 OECD Economic Surveys: Czech Republic 2010

image of OECD Economic Surveys: Czech Republic 2010

OECD's periodic survey of the Czech economy. This 2010 edition includes chapters covering the challenge of fiscal consolidation after the crisis, pro-growth tax and benefit reform, and improving the business environment. The survey finds that the Czech economy was severely affected by the global downturn, owing to its high degree of openness and integration in global production chains. The fiscal position was also hit hard, prompting a rapid shift in policy from stimulus to consolidation.  The medium-term challenges facing the country are principally concerned with creating conditions of rapid convergence with advanced OECD economies by restoring the sustainability of public finances and improving the business environment.

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The challenge of fiscal consolidation after the crisis

This chapter describes how the global crisis hit the economy and the channels through which the external shock made itself felt. It then examines the policy response to the crisis before proceeding to consider the major medium- and longterm challenges confronting the authorities during the recovery. The most important of these concern the state of public finances. First, there is an urgent need for a clear and credible strategy for medium-term fiscal consolidation that would bring the general government deficit down from its current unsustainable level. Secondly, the authorities should move ahead with the reforms needed to address the fiscal consequences of rapid population ageing. Previous Surveys have identified this as a major long-term challenge facing the country, but structural reforms in healthcare and pensions, the two areas of greatest concern, have largely stalled. The current crisis has in some respects made it harder to advance reforms in those areas, but it has done nothing to diminish the need for them.

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