Hardening the budget constraint: The experience of the post-socialist countries

The study surveys the typical manifestations of the softness of the budget constraint, such as state subsidies, soft taxation, non-performing loans, the accumulation of trade arrears between firms, and the build-up of wage arrears in the various post-socialist countries. It was widely maintained at the outset of the post-socialist transition that the 'Holy Trinity' of liberalization, privatization and stabilization would suffice to produce an efficient market economy. Since then, it has become clear that hardening the budget constraint needs to be given equal priority with these. Unless this occurs, the effects of privatization will fall short of expectations, as they have in Russia. (C) 2001 Elsevier Science B.V. All rights reserved.