Fiscal Constraintson Market-Oriented Reform in a Socialist Economy

Author/Editor:

Elias Dinopoulos ; Timothy D. Lane

Publication Date:

August 1, 1991

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

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.

Series:

Working Paper No. 91/75

Subject:

Notes:

Examines the relationship among market-oriented reform, debt reduction,and tax reform in a socialist economy.

English

Publication Date:

August 1, 1991

ISBN/ISSN:

9781451849639/1018-5941

Stock No:

WPIEA0751991

Format:

Paper

Pages:

38

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