In reform of the steering mechanism, taxation plays a changed role by influencing the performance indicator and the incentive system, while continuing an unchanged role in the financing of the budgetary sector. This chapter compares the role of taxation in the command economy and in economic reforms. In looking at taxation in economic reforms, it is obvious to turn to questions of incidence and shifting in order to analyse the allocative effects of taxation. The influence of taxation on production decisions increases, as part of a general move to 'indirect economic management'. The changeover from a command economy to a reformed steering mechanism is accompanied by changes in taxation which are only one part of the overall reform package. The most obvious steering mechanism for socialist economies is central planning. But since the socialist economy is a monetary economy, transactions involving flows of real goods and services also give rise to financial flows.