Working Paper: CEPR ID: DP575
Authors: David M. Newbery
Abstract: The inefficiency of Soviet-type economies results from their monopolized production structure, which makes soft budget constraints almost inevitable, as enterprises have bargaining power and must face expropriative tax rates for macroeconomic stability. Systemic reform aims to improve incentives, and if this is to be achieved with macro-stability, enterprises must be demonopolized. Most sequencing issues resolve into three key concerns: ensuring or restoring macroeconomic stability; not ruling out options for subsequent reforms, specifically those intended to increase competition; and maintaining support for completing the reform process.
Keywords: Eastern Europe; Sequencing; Tax Reform; Competition Policy
JEL Codes: L41; P23; P52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Monopolization (L12) | Soft Budget Constraints (H61) |
| Soft Budget Constraints (H61) | Inefficiencies and Stagnation (D61) |
| Monopolization (L12) | Inefficiencies and Stagnation (D61) |
| Inefficiencies and Stagnation (D61) | Macroeconomic Instability (E32) |
| Monopolization (L12) | Macroeconomic Instability (E32) |
| Demonopolization (L43) | Improved Incentives for Efficiency (H21) |
| Demonopolization (L43) | Macroeconomic Stability (E63) |