Small Enterprises and Economic Policy

Publication Date: April 2004

Publisher: Carnegie Endowment for International Peace

Author(s): Anders Aslund

Research Area: Economics

Type: Report

Coverage: Former communist countries

Abstract:

Recent experience in Eastern Europe, East Asia, and South America supports the idea that institutions--such as an effective judiciary, protection of property rights, and more specific laws--are key to both long-term economic development and recovery from crises. Developing good institutions is generally viewed as a desirable goal, but there is no agreed road map for such changes.

Aslund and Johnson suggest, at least for former communist countries, the right way to begin strengthening institutions is by lowering the barriers to entry for new small businesses and the costs of running these firms by switching to a simple low lump-sum tax. This policy has economic advantages, but its most important effect is to change the political equilibrium, creating a powerful force for further institutional improvement.