THE DYNAMICS OF INFLATION AND CAPITAL ACCUMULATION IN PREVIOUSLY CENTRALLY PLANNED ECONOMIES - A THEORETICAL FRAMEWORK

The corporate governance problem of state enterprises in former commun ist economies can give rise to excessive wage claims and/or capital de cumulation. This paper focuses on these problems, highlighting the dyn amic links between wage behaviour, the fiscal deficit, inflation and t he capital stock. The fiscal impact of higher wages works through the reduction in public enterprises' profits and hence government revenues from profit taxes. If wage and tax claims on firms' revenue are 'too high', capital can be run down until wage claims are moderated by the fall in output.