A centrally planned economy is an economic system in which a single entity, usually the government, plans and controls the production and distribution of goods and services. This type of economic system has been used in various forms throughout history, and is often linked to socialist or communist regimes.

In a centrally planned economy, the government is the sole actor in dictating the direction of the economy. This means that it decides how resources are allocated, what type of production is pursued, and the behavior of businesses, consumers, and workers.

Advocates of centrally planned economies argue that they allow governments to rapidly allocate resources to areas where it can help the most. For instance, if the government perceives a shortage of housing, it could shift both workforce and resources to this sector. Likewise, advocates also argue that centrally planned economies can provide workers with greater job security, improved working conditions, and more vacation time than a typical capitalist economy.

Critics of centrally planned economies point out that these systems tend to be highly inefficient. When the government is involved in economic decision-making, it often results in inefficiencies and problems associated with resource allocation. For example, lack of competition may lead to poor quality of goods and services, and inefficient use of resources. Nevertheless, the government may be unable to respond quickly to consumer preferences or technological changes. Furthermore, economic policies may be politicized, which can lead to misallocation of resources, as well as favoritism.

In recent decades, centrally planned economies have become less common in the global market economy. Most capitalist countries now include elements of capitalism and socialism in their understanding of a market economy. Despite this trend, centrally planned economies remain important in a handful of countries across the world.