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It is widely believed that national product statistics of controlled economies can be adjusted in accordance with neoclassical theory to provide reliable measures of production potential by subtracting turnover taxes, adding subsidies, replacing accounting profits with imputed uniform interest charges on capital, and imputing rents on land. This essay shows that the application of these procedures at the enterprise level cannot reliably generate prices that are approximately proportional to marginal rates of transformation, and, hence, that adjusted factor cost statistics as commonly computed cannot adequately measure production potential and should not be treated as second-best indicators of Soviet economic performance. |
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