Net and total transition costs: The timing of economic reform

Countries face an ongoing need for fiscal adjustment and economic reform - adjustment and reforms that involve short-term transition costs. Thus economic agents will postpone the required measures. On the other hand, if the corrective measures are not adopted, after a certain lapse of time procrasti...

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Bibliographic Details
Published in:World development 1997-06, Vol.25 (6), p.905-914
Main Authors: Abud, Jairo, Bresser-Pereira, Luiz Carlos
Format: Article
Language:English
Subjects:
Cost
Costs
Economic models
Economic Policy
Economic reform
Economic theory
Procrastination
Reform
Transition
Transition economies
Transitions
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Summary:Countries face an ongoing need for fiscal adjustment and economic reform - adjustment and reforms that involve short-term transition costs. Thus economic agents will postpone the required measures. On the other hand, if the corrective measures are not adopted, after a certain lapse of time procrastination costs arise. The net transition costs of adjustment and reform are the difference between these 2 costs: they may explain the timing of reform. If adjustment and reform is undertaken soon after economic distortions appear, the net transition costs will be high, but, as a tradeoff, recovery will come sooner. As economic agents show a greater preference for present consumption, they will postpone adjustment and reform. Then, the procrastination costs will start to rise.
ISSN:0305-750X
1873-5991
DOI:10.1016/s0305-750x(97)00006-5