Pitfalls of taxation policy in transition economies

Vranceanu, R. P. and Daianu, D. (2001) Pitfalls of taxation policy in transition economies. Acta Oeconomica, 51 (1). pp. 3-15. ISSN 0001-6373

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Abstract

This paper develops two stylised models of the transition economy that challenge, to some extent, the conventional approach to policy reforms. In the first model, the absence of market-oriented institutions is responsible for the occurrence of a non-cooperative equilibrium, where the amount of public services provided by the state is too low, which, in turn, adversely affects the global performance of the economy. In the second model, a benevolent government will choose a taxation level that pushes too many firms out of the market; hence global supply falls below its optimal level. In both models, disruptions specific to transitional systems lead to abnormal responses to standard fiscal policy.

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