Public finance and the optimal speed of transition
Abstract
We develop a general equilibrium model that jointly considers the influence of capital accumulation constraints and of labour market frictions on the process of transition. We endogenize the economic and budgetary costs of different government policies and show that, early in transition, governments ought to subsidize state firms. Provided that intertemporal commitment is feasible, this policy limits the initial output fall, which relaxes capital accumulation constraints, accelerates transition, and increases welfare. Moreover, by resorting to indirect - instead of direct - taxes, governments can bring the path of transition closer to the first best. Yet, political pressures may induce a policy of suboptimal subsidization. Copyright (c) The European Bank for Reconstruction and Development, 2003.(This abstract was borrowed from another version of this item.)
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Bibliographic Info
Paper provided by ULB -- Universite Libre de Bruxelles in its series ULB Institutional Repository with number 2013/10007.Length:
Date of creation: 2003
Date of revision:
Publication status: Published in: The Economics of Transition (2003) v.11 n° 3,p.435-462
Handle: RePEc:ulb:ulbeco:2013/10007
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Related research
Keywords:Other versions of this item:
- Micael Castanheira, 2003. "Public finance and the optimal speed of transition," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 11(3), pages 435-462, 09.
- Castanheira, Micael, 2003. "Public Finance and the Optimal Speed of Transition," CEPR Discussion Papers 3797, C.E.P.R. Discussion Papers.
- H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
- P20 - Economic Systems - - Socialist Systems and Transition Economies - - - General
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Citations
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
- Balla, Katalin & Kollo, Janos & Simonovits, András, 2006.
"Transition with Heterogeneous Labor,"
IZA Discussion Papers
2179, Institute for the Study of Labor (IZA).
- Balla, Katalin & Köllo, János & Simonovits, András, 2008. "Transition with heterogeneous labor," Structural Change and Economic Dynamics, Elsevier, vol. 19(3), pages 203-220, September.
- Blanchard, Olivier & Kremer, Michael, 1997.
"Disorganization,"
The Quarterly Journal of Economics,
MIT Press, vol. 112(4), pages 1091-1126, November.
- Olivier Blanchard & Michael Kremer, 1997. "Disorganization," William Davidson Institute Working Papers Series 38, William Davidson Institute at the University of Michigan.
- Blanchard, O & Kremer, M, 1996. "Disorganization," Working papers 96-30, Massachusetts Institute of Technology (MIT), Department of Economics.
- Blanchard, Olivier & Kremer, Michael R., 1997. "Disorganization," Scholarly Articles 3659691, Harvard University Department of Economics.
- Maxim Bouev, 2004. "Diverging Paths: Transition in the Presence of the Informal Sector," William Davidson Institute Working Papers Series 2004-689, William Davidson Institute at the University of Michigan.
- Alain de Crombrugghe & Gregory de Walque, 2011. "Wage and employment effects of a wage norm : The Polish transition experience," Working Paper Research 209, National Bank of Belgium.
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