A simple model of the transformational recession under a limited mobility constraint

Gomulka, Stanislaw and Lane, John (2000) A simple model of the transformational recession under a limited mobility constraint. CEPDP (466). London School of Economics and Political Science. Centre for Economic Performance, London, UK. ISBN 075301405X

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Abstract

This paper considers the impact on sectoral outputs and employments of rapid and large changes in relative prices, such as those which occurred in transition economies during the 1990s. A simple general equilibrium model is developed in which price changes are induced by a tax reform and resource mobility is restricted. The reform is designed to improve the quality of the price system, but is shown to cause a recession the size of which is proportional to the initial tax distortion. It is also demonstrated that a wage flexibility would moderate the magnitude of the recession, but this gain would be obtained at a cost in longer term efficiency, and would be, in any case, unsustainable.

Item Type:	Monograph (Discussion Paper)
Official URL:	http://cep.lse.ac.uk
Additional Information:	© 2000 the authors
Divisions:	Centre for Economic Performance Economics
Subjects:	H Social Sciences > HB Economic Theory
Date Deposited:	30 Jul 2008 13:30
Last Modified:	13 Sep 2024 19:42
URI:	http://eprints.lse.ac.uk/id/eprint/20171

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