The Pros and Cons of Banking Socialism

Martin Gregor ()

No 2007/03, Working Papers IES from Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies

Abstract: When nominal wage rigidity is large, and banking sector oligopolistic, the benevolent government may prefer to regulate interest rates to boost labor demand. A government of a transition economy may postpone bank privatization to keep credit provision under control, as long as inefficiencies of state ownership are not prohibitive. We model a transition economy where the government initially owns enterprises as well as banks. The economy features constant wage, and strong market power of banks. Under these conditions, we identify when the government has incentive to privatize enterprises and/or banks. We derive conditions under which the banking socialism (the government owns banks, but privatizes enterprises) dominates other institutional modes: socialism, industrial socialism, and capitalism.

Keywords: privatization; banking; transition (search for similar items in EconPapers)
JEL-codes: D72 D78 E62 H20 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2007-01, Revised 2007-01
New Economics Papers: this item is included in nep-ban, nep-mac, nep-pbe and nep-tra
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