Transition and the Changing Role of Government

Over the past decade many centrally planked economies have set out to transform themselves into market economies. To be successful, They need to develop the necessary institutions and ensure a proper role for government.

While much has been written about the economic changes that must take place for centrally planned countries to become market economies, less has been written about how the economic role of the state must change. In “shock therapy”, advocated by some economists at the start of the transition, the main ingredients for success were assumed to be price liberalization, macroeconomic stabilization, and privatization. Little was said about the role of the government in the new environment. A complete transformation of the economy, the institutions and economic process requires, in addition, that profitability be the guiding criterion for most investment decisions; activities deemed socially desirable be financed by the government and the government effectively perform its core functions in the economy while withdrawing from, or drastically reducing its role in, many secondary activities.

To function well, market economies need governments that can established and enforce the “rules the game”, promote widely shored social objectives, raise revenues to finance public sector activities, spend the revenues productively, enforce contracts and protect property, and produce public goods. The guiding principle in a market economy should be that every thing is permitted unless expressly forbidden.

Once a country has made the transition to a market economy, the role of government is dramatically different. It operates not through direct controls but mostly through the tax system, the budget, and a few essential regulations. The tax system must be totally reformed to make i efficient and equitable, and capable of raising reasonable revenues. Tax administration that had been used to dealing with relatively few, friendly enterprises had to deal with hundreds of thousands, or even millions, of unfriendly taxpayers. Expenditure policies must be brought in live with the reduced public resources. The new regulation will play a role in setting the rules of the game, regulating private pensions, and enforcing competition. Most permits, authorizations, and other mechanisms that are known to promote bribery must be eliminated, because they lead to the corruption that is widespread in many transition countries.

Governments will be asked to play a more positive role in income redistribution. Policy makers should work hard to harmonize the concept of the role of the state that seems to prevail in many of legislatures with one that is feasible, given the existing macroeconomic conditions and level of institutional and economic development.

Task: Write an essay on the issues of fiscal policy arising in connection transition of economy economy in your country.

Дата добавления: 2014-11-16