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The Kornai Effect with Partial Bailouts and Taxes

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  • Magee, Karen L
  • Quandt, Richard E
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    Abstract

    This model examines Kornai's observation that in the presence of bailouts, firms' demand for inputs will be greater than would otherwise be the case. This conjecture is examined in a model in which both revenue and cost uncertainty are present and in which firms making losses are partially subsidized and firms making positive profits are partially taxed. The Kornai effect is more prevalent the greater the subsidy rate, the smaller the tax rate and the greater the variance of the random variables through which uncertainty manifests itself. In the case of strongly positively correlated cost and revenue uncertainty, the absolute incidence of the Kornai effect is small. Copyright 1994 by Kluwer Academic Publishers

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    Bibliographic Info

    Article provided by Springer in its journal Economics of Planning.

    Volume (Year): 27 (1994)
    Issue (Month): 1 ()
    Pages: 27-38

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    Handle: RePEc:kap:ecopln:v:27:y:1994:i:1:p:27-38

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    Web page: http://www.springerlink.com/link.asp?id=113294

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    Cited by:
    1. Kornai, János & Maskin, Eric & Roland, Gérard, 2004. "A puha költségvetési korlát I
      [The soft budget constraint I]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(7), pages 608-624.
    2. Mehrdad Vahabi, 2001. "The Soft Budget Constraint: A Theoretical Clarification," Post-Print hal-00629160, HAL.
    3. 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.
    4. Vahabi, Mehrdad, 2003. "La contrainte budgétaire lâche et la théorie économique
      [Soft Budget Constraint and Economic Theory]
      ," MPRA Paper 17651, University Library of Munich, Germany.

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