Price Liberalization in the Czech Republic: Shock Therapy versus Gradual Price Deregulation
Reform of the price system is a keystone of transition to a market economy. In all Visegrad countries, competition was introduced quite successfully through price liberalisation, removal of customs barriers and reduction of subsidies. Technically price liberalisation is easy to implement: the government simply announces that all agents can set their own prices from a certain date. The problem is political: necessary price liberalisation leads to income redistribution, and political and social frictions. In order to prevent a sharp rise in inflation, any resetting of prices has to be complemented by certain steps. Namely, a competitive environment should exist before actual price liberalisation. This assumes extensive privatisation and restructuralization programs in the former centrally planned economies.
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