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Policy burden, privatization and soft budget constraint

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  • Lin, Justin Yifu
  • Li, Zhiyun

Abstract

We propose a new cause for the pervasive syndromes of soft budget constraint (SBC) in socialist and transition economies, that is, the policy burdens on enterprises result in the SBC problems. The policy burdens induce low effort input of firm manager and thus the low efficiency of production. And with the policy burdens, increasing market competition will make the SBC syndromes arise more likely. Privatization will not necessarily harden the budget constraint of the enterprise. On the contrary, when a SOE still bears the policy burdens, privatization will only aggravate the SBC problems. Because in this case, a private enterprise will demand more ex post subsidies from the government, than a SOE under the same condition. Our results help to explain many stylized facts in transition and socialist economies. Journal of Comparative Economics 36 (1) (2008) 90-102.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Comparative Economics.

Volume (Year): 36 (2008)
Issue (Month): 1 (March)
Pages: 90-102

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Handle: RePEc:eee:jcecon:v:36:y:2008:i:1:p:90-102

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Web page: http://www.elsevier.com/locate/inca/622864

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References

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  1. Dewatripont, M & Maskin, E, 1995. "Credit and Efficiency in Centralized and Decentralized Economies," Review of Economic Studies, Wiley Blackwell, vol. 62(4), pages 541-55, October.
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  4. J�nos Kornai & Eric Maskin & G�rard Roland, 2003. "Understanding the Soft Budget Constraint," Journal of Economic Literature, American Economic Association, vol. 41(4), pages 1095-1136, December.
  5. Yingyi Qian & Gerard Roland, . "Federalism and the Soft Budget Constraint," Working Papers 97045, Stanford University, Department of Economics.
  6. Novshek, William, 1980. "Cournot Equilibrium with Free Entry," Review of Economic Studies, Wiley Blackwell, vol. 47(3), pages 473-86, April.
  7. Lin, Justin Yifu, 2003. "Development Strategy, Viability, and Economic Convergence," Economic Development and Cultural Change, University of Chicago Press, vol. 51(2), pages 276-308, January.
  8. Guofu Tan & Justin Yifu Lin, 1999. "Policy Burdens, Accountability, and the Soft Budget Constraint," American Economic Review, American Economic Association, vol. 89(2), pages 426-431, May.
  9. Lin, Justin Yifu & Cai, Fang & Li, Zhou, 1998. "Competition, Policy Burdens, and State-Owned Enterprise Reform," American Economic Review, American Economic Association, vol. 88(2), pages 422-27, May.
  10. Ilya R. Segal, 1998. "Monopoly and Soft Budget Constraint," RAND Journal of Economics, The RAND Corporation, vol. 29(3), pages 596-609, Autumn.
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Citations

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Cited by:
  1. Ernesto Crivelli & Klaas Staal, 2010. "Nationalizations and Efficiency," International Advances in Economic Research, Springer, vol. 16(2), pages 239-240, May.
  2. Lingzhi Yun & Wen Cao, 2008. "State-holding share, policy burden and performance: A study on the program of strategic investor importing for state-owned banks," Psychometrika, Springer, vol. 3(4), pages 531-547, December.
  3. Johansson, Anders C. & Feng, Xunan, 2013. "CEO Incentives in Chinese State-Controlled Firms," Working Paper Series 2013-27, Stockholm China Economic Research Institute, Stockholm School of Economics.
  4. Wang F.S., Leonard & Chen, Tai-Liang, 2011. "Privatization, Efficiency Gap, and Subsidization with Excess Taxation Burden," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 52(1), pages 55-68, June.
  5. TODO Yasuyuki & INUI Tomohiko & YUAN Yuan, 2012. "Effects of Privatization on Exporting Decisions: Firm-level evidence from Chinese state-owned enterprises," Discussion papers 12015, Research Institute of Economy, Trade and Industry (RIETI).
  6. Xu, Cheng-Gang, 2010. "The Institutional Foundations of China’s Reforms and Development," CEPR Discussion Papers 7654, C.E.P.R. Discussion Papers.
  7. Dong Zhang & Owen Freestone, 2013. "China's Unfinished State-owned Enterprise Reforms," Economic Roundup, Treasury, Australian Government, issue 2, pages 79-102, December.
  8. Joel Wood, 2013. "The Effects of Bailouts and Soft Budget Constraints on the Environment," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 54(1), pages 127-137, January.
  9. Justin Yifu Lin & David Rosenblatt, 2012. "Shifting patterns of economic growth and rethinking development," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 15(3), pages 171-194, September.
  10. Yongheng Deng & Randall Morck & Jing Wu & Bernard Yeung, 2011. "Monetary and Fiscal Stimuli, Ownership Structure, and China's Housing Market," NBER Working Papers 16871, National Bureau of Economic Research, Inc.
  11. Cheng, Yuk-Shing & Chung, Kim-Sau, 2013. "Too many mothers-in-law?," Journal of Development Economics, Elsevier, vol. 105(C), pages 69-76.
  12. Johansson, Anders C. & Feng, Xunan, 2013. "The State Advances, the Private Sector Retreats: Firm Effects of China’s Great Stimulus Program," Working Paper Series 2013-25, Stockholm China Economic Research Institute, Stockholm School of Economics.

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