Fiscal Constraintson Market-Oriented Reform in a Socialist Economy
August 1, 1991
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Summary
This paper develops a simple two-sector model of a socialist economy, in which government revenues required for servicing external debt are obtained from taxation of the socialized sector and from import taxes. Wages and employment in the socialized sector are the outcome of Nash bargaining between the government and an import-competing labor-dominated state enterprise with domestic market power. The effects of trade liberalization, demonopolization, technical improvements, and limitations on labor’s bargaining power are examined, and the implications for privatization are considered. It is shown that some combination of tax reform and debt reduction may be a precondition for market-oriented reforms.
Subject: Employment, International trade, Labor, Trade barriers, Trade liberalization, Wages
Keywords: Eastern Europe, Employment, enterprise council, enterprise manager, enterprise sector, enterprises vis-à-vis, firm's indifference curve, labor-managed firm, marginal revenue, monopoly rent, socialized enterprise, state enterprise, Trade barriers, Trade liberalization, Wages, WP
Pages:
38
Volume:
1991
DOI:
---
Issue:
075
Series:
Working Paper No. 1991/075
Stock No:
WPIEA0751991
ISBN:
9781451849639
ISSN:
1018-5941
Notes
Examines the relationship among market-oriented reform, debt reduction,and tax reform in a socialist economy.
