In this paper, we examine the impact of political constraints on economic reform plans, with special reference to the transition from centrally planned to market economies. We analyse the problem of an agenda-setting reform-minded Government facing a bureaucracy or industrial sector for which allocative efficiency requires redundancies and an increase in work intensity. The Government also tries to minimize the rents conceded to its heterogeneous workforce. We examine two types of political constraints: unanimity rule and majority rule, both in a one-period and a two-period horizon. The main results are the following. First of all, we show how adverse selection and time-consistency may generate the widely-observed feature of gradualism as an ingredient of an optimal reform. Second, under a majority rule, it is shown to be possible for the Government to obtain a majority vote for a reform scheme that intertemporally hurts majority interests. Indeed, the Government can improve rent extraction through the strategic use of the threat of future proposals: the group which expects to be in the minority tomorrow may accept concessions, while its votes can be used to extract rents from another group. These results suggest that, in a dynamic context, democratic constraints should not be overestimated as an obstacle against efficiency-enhancing economic reforms. The results of this paper may throw some light on the political economy of current reforms in Eastern Europe. Governments, and political decision-makers in general, always face political constraints when elaborating reform proposals. They know that the need to overcome potential opposition from various groups of the population constrains proposals for change. Political constraints vary, depending on the specific institutional structure of society, and are clearly different under a military dictatorship than under a parliamentary democracy. The role of political constraints seems particularly important in Eastern Europe today, where new democratic governments face the huge task of achieving the transition to a market economy. While the introduction of democracy may have removed some important obstacles to economic change (namely, the veto-power of a powerful nomenclatura under communist one-party rule), fears are expressed that it could potentially jeopardize economic reforms which may, during the transition period, hurt a majority of the population.' What can economic theory tell us about optimal economic reform under political constraints? This paper starts addressing this ambitious question by looking at structural reform, focusing on a restructuring of economic sectors which requires massive redundancies and a significant rise in labour productivity. Our model illustrates the case of planning