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In Eastern Europe today we need to distinguish between legal and illegal economies, as well as between market and non-market economies. The old command economy was legal but non-market; it also spawned parasitical activities that were both illegal and non-market. The critical question in Eastern Europe today is whether societies in transition from a command economy are heading toward a civil economy, which is legal as well as a market, or toward an uncivil market economy outside the law. Just as a free society depends upon private markets, so the flourishing of the private sector depends upon the laws and order of a Rechstat. After developing these distinctions, this paper shows how the mass of East Europeans today concurrently operate in legal, alegal and illegal economies; the importanct of developing a civil economy if newly democratic states are to be able to raise the tax revenues needed to finance education, health care and social security programs; and tax policies that can encourage those in the new private sector of Eastern Europe to invest more effort in the civil than the uncivil economy.
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