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, t he accumulation of trade arrears between firms, and the build-up of wage ar rears in the various post-socialist countries. It was widely maintained at the outset of the post-socialist transition that the 'Holy Trinity' of libe ralization, privatization and stabilization would suffice to produce an eff icient market economy. Since then, it has become clear that hardening the b udget constraint needs to be given equal priority with these. Unless this o ccurs, the effects of privatization will fall short of expectations, as the y have in Russia. (C) 2001 Elsevier Science B.V. All rights reserved.