ABSTRACT
This chapter deals with the connection between politics and inflation in central and eastern European nations that are attempting to make the transition from centrally planned to market-orientated economies. From a political perspective high inflation is seldom a desirable outcome. In democracies, political support for the government is frequently linked to stable consumer prices concurrent with wage increases. Changes in the political capacity of states are fueled by a government's capacity to achieve stated goals. Data limitations seriously constrain this analysis. On the political side, the most reliable estimates are those of relative political penetration because in non-market economies it is possible to estimate the size of active black markets. Political penetration and extraction estimates provide us with a cross-temporal and cross-sectional glimpse of evolutionary political performance in emerging economies. Governments that oversee the transformation from centralized to market economies face very serious political risks when they attempt to control inflation.
