ABSTRACT
Reform of the steering mechanism involves reforms in wage policy, and reform of taxes paid by enterprises. The policy parameters relating to wage policy are the parameter k which relates changes in the wage fund to changes in profit, and the tax on the wage fund, WT. These parameters are inputs into the response function of producers, forming coded instructions about decisions relating to labour and wages. The system of turnover taxation and price subsidies determines the level and structure of retail prices. In the economic theory of public finance, one of the presumed aims of the tax system is the promotion of equity. 'Vertical equity' is a principle of fair or equitable taxation, based on differential taxation of those with differing ability to pay. In capitalist economies, personal income taxation is often viewed as an important instrument of income distribution policy. Income from wages and salaries can be controlled through centralised wages policy and national pay scales.
