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Fiscal constraints and the speed of transition

  • Chadha, Bankim
  • Coricelli, Fabrizio

This paper develops a model of the process of reallocation of resources from a declining state sector to an expanding private sector. The transition is shown to be costly in that it entails unemployment and a deterioration of the fiscal balance. The interaction of fiscal constraints with the transition process is examined. It is shown that fiscal constraints may induce the government to maintain the state sector, slowing the speed of transition, and could jeopardize the eventual outcome of the process of restructuring.

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Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 52 (1997)
Issue (Month): 1 (February)
Pages: 221-249

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Handle: RePEc:eee:deveco:v:52:y:1997:i:1:p:221-249
Contact details of provider: Web page: http://www.elsevier.com/locate/devec

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  1. Elias Dinopoulos & Timothy D. Lane, 1991. "Fiscal Constraintson Market-Oriented Reform in a Socialist Economy," IMF Working Papers 91/75, International Monetary Fund.
  2. Kornai, J. & Ely, R.T., 1992. "The Postsocialist Transition and the State: Reflections in the Light of Hungarian Fiscal Problems," Harvard Institute of Economic Research Working Papers 1583, Harvard - Institute of Economic Research.
  3. Kornélia Krajnyák & Bankim Chadha & Fabrizio Coricelli, 1993. "Economic Restructuring, Unemployment, and Growth in a Transition Economy," IMF Working Papers 93/16, International Monetary Fund.
  4. Olivier Jean Blanchard & Peter Diamond, 1992. "The Flow Approach to Labor Markets," NBER Working Papers 4000, National Bureau of Economic Research, Inc.
  5. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  6. Michael Bruno, 1992. "Stabilization and Reform in Eastern Europe: A Preliminary Evaluation," IMF Staff Papers, Palgrave Macmillan, vol. 39(4), pages 741-777, December.
  7. Vito Tanzi, 1993. "Fiscal Policy and the Economic Restructuring of Economies in Transition," IMF Working Papers 93/22, International Monetary Fund.
  8. Guillermo A. Calvo & Jacob A. Frenkel, 1991. "From Centrally Planned to Market Economy: The Road from CPE to PCPE," IMF Staff Papers, Palgrave Macmillan, vol. 38(2), pages 268-299, June.
  9. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  10. Bankim Chadha, 1991. "Wages, Profitability, and Growth in a Small Open Economy," IMF Staff Papers, Palgrave Macmillan, vol. 38(1), pages 59-82, March.
  11. Michael Bruno, 1992. "Stabilization and Reform in Eastern Europe; A Preliminary Evaluation," IMF Working Papers 92/30, International Monetary Fund.
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