climate.k Of course, that prescription is unrealistic, since all these countries have already undertaken some restructuring of their economies and some have already made important changes in their tax systems. A more realistic picture would find the tax system changing-perhaps repeatedly-as everything else changes. Ihis suggests a less rigorous set of guidelines for tax policy during transidon: avoidance of the "zigzag problem." By this, I mean that RSEs should decide at the outset the type of tax system they ultimately want to have and then move toward it essentially in a linear manner, avoiding reversals of policy that create uncertainty for business. An additional suggestion is to avoid introducing an individual tax that is more sophisticated and complicated than can be administered, risking either massive non-compliance or the need to rescind the policy and adopt a system that is more appropriate, given limi tations imposed by the capacity for tax administration and compliance.

2. Three tyne of busines. In all these countries state enterprises loom large in the overall economy, and are likely to continue to do so for some time, due both to rel'ctance in some countries to privatize completely and the difficulty in all of privatizing quickly. It thus seems best to thini of three general types of business.2 First are the state enterprises. Inidally these will be fbund in-or even dominate-almost all sectors of the economy (with exception **s** uch as agriculture in Poland, which was decoflectivized in 1956). Ultimately-following extensive privatization-state ownership may be found primarily in sectors characterized as public utilities in the WVest and in certain industries thought to have "special importance," such as steel and energy. In principle, it should be relatively easy for the authorities to exercise fiscal control over these enterprises, providing appropriate accounting standards are implemented. Indeed, much of the tax revenues of RSEs has traditionally come from these enterprises. Even so, the history of soft budget constraints and losses makes one less than opdmistic about collecting taxes from most such enterprises.i The second group are large enterprises that are primarily in the private sector. These include both locally and foreign-owned fis. (Whether to classify joint ventures between public and private firms with public or private enterprises is not totally clear. The answer probably depends on the breakdown of ownership, voting rights, etc. Fortunately this distinction is probably not crucial for the present discussion.) Tne primary issues for this group are a) whether such firms have accoundng records adequate for their fiscal control and b) whether they are widely or closely owned. Widely owned companies are likely to be more easily controlled by fiscal authorities than are closely held ones, because of their need to report to shareholders.

The third group consists of the burgeoning small business sector. Many "firms" in this category are closely owned (they may be proprietorships. including "mom and pop" businesses), many have quite inadequate books of account, many are not formally registered to do business, some do not even have identifiable permanent places of business, and many will not voluntarily pay the taxes they owe. In short, they are typical of the "hard-to-tax" groups found in developing countries.

# B. Administration and Compic

One legacy of central planning is the virtually complete lack of both a tax administration infrastructure and experience with tax compliance. Under classical central planning, (some if not all) profits of state enterprises were simply transferred to the state budget (and investment funds were allocated among enterprises by the planners). The transfer was simply a bookkeeping entry involving enterprise "funds' that, due to the all-inclusive nature of planning, generally could not be used for any other purpose.A In this "tellering" activity, as much attention may have been paid to allocating revenues to the appropriate budgetary fimds as to verifying the accuracy of reported profits.W While