The Korean Economic Review
Economic and Political Reforms in a Planned Economy
Suk Jae Noh (Hallym University)Year 2014Vol. 30No. 2
This paper investigates the economic and political reforms in a planned economy as theequilibrium responses to revolutionary threats. Which reform will be chosen depends on theinitial degree of resource inequality between the elite and the mass. The probability of asuccessful revolution plays a role in implementing either economic or political reforms onlywhen the resource disparity is not too severe. In this case political reform is more likely whenthe probability of revolution is lower and revolution is not costly and the introduction ofmarket oriented system greatly improves the efficiency of the economy. It is also found that,when the introduction of market oriented system is enough for the prevention of revolution,the elite extract more from the mass with a higher tax rate as the probability of revolutionbecomes higher. With severe inequality in resource distribution, the elite give up theirpolitical power and democratic market oriented economic system is the only equilibriumoutcome. We also consider conditions under which either economic or political reform is notenough to prevent revolution.