As a whole, the past decade was buoyant for government revenues as, in the context of rapid economic growth, the share of tax revenues of GDP increased by 3.5 percentage points. In 2010, government revenues and expenses surpassed a third of GDP and concerns have been raised about possible crowding-out effects of increased government share of economy.

However, the tax policy of Moldova has consisted of repeated lowering of income tax rates. Corporate income tax was lowered from 32 percent in 1998 to practically zero in 2008. The personal income tax code was also adjusted, with maximum and minimum tax rates of 18 and 7 percent, respectively. While the role of income taxes has declined, the value-added tax (part of “taxes on goods and services”) has become the largest source of tax revenue (Qehaja 2012). In this context, it is important to note that the growth in Moldova’s tax revenues is more closely aligned with absorption growth than GDP growth; during the period 2000-2010, taxes measured as a share of absorption increased from 11.7 to 13.1 percent, i.e., less strongly than if expressed as a share of GDP.

On the expenditure side, government subsidies and transfers to firms and households have hovered around 15-20 percent of GDP throughout the 2000-2010 decade. The other major items were compensation of employees and spending on goods and services (excluding capital spending) (see Table 2).

**Table 2. Government current finance indicators 2000-2010 (% of GDP)**

||2000|2001|2002|2003|2004|2005|2006|2007|2008|2009|2010|
|---|---|---|---|---|---|---|---|---|---|---|---|
|Tax revenue|14,7|12,2|12,9|14,7|16,4|18,5|19,6|20,6|20,4|17,7|18,2|
|- Taxes on goods and services|12,4|10,3|10,5|12,2|13,9|15,6|17,2|17,6|18,1|15,9|16,4|
|- Taxes on international trade|1,4|1,2|1,5|1,7|1,5|1,8|1,4|1,7|1,8|1,5|1,5|
|- Taxes on income, profits and capital gains|0,9|0,6|0,6|0,8|0,9|0,8|0,9|1,2|0,5|0,3|0,3|
|Social contributions|6,3|6,8|7,3|7,2|7,8|7,8|9,5|9,6|10,5|11,5|10,4|
|Grants and other revenue|6,4|4,5|4,9|4,9|5,1|6,7|5,3|5,9|5,1|5,6|0,0|
|Total of revenues|27,4|23,6|25,1|26,7|29,3|33,1|34,3|36,1|36,0|34,5|34,3|
|Compensation of employees|3,0|3,3|4,6|4,6|4,1|4,1|5,0|4,9|4,7|5,7|4,8|
|Goods and services|2,9|2,3|3,8|1,8|4,8|5,1|6,0|5,9|6,4|7,3|7,0|
|Interest payments|6,4|4,2|2,2|2,1|2,4|1,2|1,0|1,1|1,1|1,4|0,8|
|Subsidies and other transfers|15,9|12,4|12,0|11,6|13,3|15,6|18,0|18,3|18,7|21,5|20,5|
|Other expenses|0,8|0,0|0,0|2,2|2,7|3,2|1,9|2,2|1,8|2,2|1,9|
|Total of expenses|28,9|22,3|22,6|22,2|27,3|29,3|31,9|32,4|32,8|38,0|35,0|

Sources: World Bank (2012).

Between 2000 and 2004, government annual capital spending was not prioritized, staying in the range of 2-3 percent of GDP. However, during the period 2005-2010 it was significantly higher, at 5-8 percent of GDP (International Monetary Fund 2005, 2008, and 2012). As a result of this relative neglect and spending inefficiencies, Moldova has been left with an “infrastructure deficit”, manifested in poor road conditions and limited geographic coverage for the internet. Among the national roads, 58 percent are classified as poor. For local roads the situation is worse, with 75 percent estimated to be in poor condition. Only 10 percent of national roads and about 5 percent of local roads are in good condition. About 400 km of formerly paved roads have lost their pavement and have reverted to unpaved gravel or earth roads (World Bank 2009).

In 2009, only a third of Moldovans were internet users. In many neighboring and nearby countries, diffusion of new communication technologies has been faster than in Moldova. Fixed broadband internet subscribers represented a similar share of population (32 percent), but as the coverage of fixed telephone lines is much lower than that of mobile phones (32 percent vs. 78 percent), the future of increased internet may lie in mobile solutions. In Figures 4 and 5, the latecomer position is 8