Fiscal Adjustment in Latvia under Transition

This paper aims to evaluate the Latvian fiscal reform path, to clarify the main political and economic problems associated with the execution of fiscal reform, and to assess public opinion in the light of the policies introduced. The Latvian government’s main problem during the transition period 1991-1995 concerned it’s desire to maintain basic services and a social safety net, while tax revenues were falling dramatically, due to a significant decline in economic activity. It is argued here, that to resolve this, the government should increase the efficiency of tax administration and introduce an efficient penalty system for tax evasion instead of increasing tax rates.