This paper investigates the economic and political reforms in a planned economy as the
equilibrium responses to revolutionary threats. Which reform will be chosen depends on the
initial degree of resource inequality between the elite and the mass. The probability of a
successful revolution plays a role in implementing either economic or political reforms only
when the resource disparity is not too severe. In this case political reform is more likely when
the probability of revolution is lower and revolution is not costly and the introduction of
market oriented system greatly improves the efficiency of the economy. It is also found that,
when the introduction of market oriented system is enough for the prevention of revolution,
the elite extract more from the mass with a higher tax rate as the probability of revolution
becomes higher. With severe inequality in resource distribution, the elite give up their
political power and democratic market oriented economic system is the only equilibrium
outcome. We also consider conditions under which either economic or political reform is not
enough to prevent revolution.