IDEAS home Printed from https://ideas.repec.org/p/hhs/oslohe/2001_002.html
   My bibliography  Save this paper

Politicians and soft budget constraints

Author

Listed:
  • Dalen, Dag Morten

    (BI Norwegian School of Management)

  • Moen, Espen R.

    (BI Norwegian School of Management)

  • Riis, Christian

    (BI Norwegian School of Management)

Abstract

We study soft budget constraints from the perspective of political economics. A partly partisan government confronts a budget crisis in a politically important sector, e.g. like the health care sector. To what extent the government wants to make additional grants to the sector depends on economic conditions and on the preferences of the government, both unknown to the electorate. Thus, the government’s budget response gives a signal of its preferences, and may thereby influence the probability that the government is re-elected. As a result, the handeling of a budget crisis becomes inefficient even from an ex post point of view, in the sense that it does not react adequately to changing economic conditions.

Suggested Citation

  • Dalen, Dag Morten & Moen, Espen R. & Riis, Christian, 2009. "Politicians and soft budget constraints," HERO Online Working Paper Series 2001:2, University of Oslo, Health Economics Research Programme.
    • Handle: RePEc:hhs:oslohe:2001_002
    as

    Download full text from publisher

    File URL: http://www.hero.uio.no/publicat/2001/HERO2001_2.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Christian Schultz, 1996. "Polarization and Inefficient Policies," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 63(2), pages 331-344.
    2. János Kornai, 2014. "The soft budget constraint," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 64(supplemen), pages 25-79, November.
    3. Qian, Yingyi & Roland, Gerard, 1998. "Federalism and the Soft Budget Constraint," American Economic Review, American Economic Association, vol. 88(5), pages 1143-1162, December.
    4. M. Dewatripont & E. Maskin, 1995. "Credit and Efficiency in Centralized and Decentralized Economies," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 62(4), pages 541-555.
    5. Swank, Otto H., 1998. "Towards an economic theory of party ideology," European Journal of Political Economy, Elsevier, vol. 14(2), pages 223-240, May.
    6. Cukierman, Alex & Tommasi, Mariano, 1998. "When Does It Take a Nixon to Go to China?," American Economic Review, American Economic Association, vol. 88(1), pages 180-197, March.
    7. In-Koo Cho & David M. Kreps, 1987. "Signaling Games and Stable Equilibria," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 102(2), pages 179-221.
    8. Harrington, Joseph E, Jr, 1993. "Economic Policy, Economic Performance, and Elections," American Economic Review, American Economic Association, vol. 83(1), pages 27-42, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Schultz, Christian, 2002. "Policy biases with voters' uncertainty about the economy and the government," European Economic Review, Elsevier, vol. 46(3), pages 487-506, March.
    2. Thomas Jensen, 2009. "Electoral Competition when Candidates are Better Informed than Voters," EPRU Working Paper Series 2009-06, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
    3. Akai, Nobuo & Sato, Motohiro, 2008. "Too big or too small? A synthetic view of the commitment problem of interregional transfers," Journal of Urban Economics, Elsevier, vol. 64(3), pages 551-559, November.
    4. Besfamille, Martin & Lockwood, Ben, 2004. "Are Hard Budget Constraints for Sub-National Governments Always Efficient?," The Warwick Economics Research Paper Series (TWERPS) 717, University of Warwick, Department of Economics.
    5. Robert Inman, 2001. "Transfers and Bailouts: Institutions for Enforcing Local Fiscal Discipline," Constitutional Political Economy, Springer, vol. 12(2), pages 141-160, June.
    6. Levaggi, Rosella & Zanola, Roberto, 2000. "The Flypaper Effect: Evidence from the Italian National Health System," POLIS Working Papers 10, Institute of Public Policy and Public Choice - POLIS.
    7. Albert Park & Minggao Shen, 2002. "A Refinancing Model of Decentralization with Empirical Evidence from China," William Davidson Institute Working Papers Series 461, William Davidson Institute at the University of Michigan.
    8. Le Borgne, Eric & Lockwood, Ben, 2000. "Candidate Entry, Screening, and the Political Budget Cycle," The Warwick Economics Research Paper Series (TWERPS) 582, University of Warwick, Department of Economics.
    9. 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.
    10. de Bettignies, Jean-Etienne & Ross, Thomas W., 2009. "Public-private partnerships and the privatization of financing: An incomplete contracts approach," International Journal of Industrial Organization, Elsevier, vol. 27(3), pages 358-368, May.
    11. Mike Felgenhauer, 2012. "Revealing information in electoral competition," Public Choice, Springer, vol. 153(1), pages 55-68, October.
    12. Dur, Robert A J, 2001. "Why Do Policy Makers Stick to Inefficient Decisions?," Public Choice, Springer, vol. 107(3-4), pages 221-234, June.
    13. Park, Albert & Shen, Minggao, 2008. "Refinancing and decentralization: Evidence from China," Journal of Economic Behavior & Organization, Elsevier, vol. 66(3-4), pages 703-730, June.
    14. Espen R. Moen & Christian Riis, 2010. "Policy Reversal," American Economic Review, American Economic Association, vol. 100(3), pages 1261-1268, June.
    15. Cesar Martinelli & Akihiko Matsui, 1999. "Policy Reversals: Electoral Competition with Privately Informed Parties," Working Papers 9905, Centro de Investigacion Economica, ITAM, revised Jan 2000.
    16. Crivelli, Ernesto, 2006. "Sub-National Optimal Budget Allocation and Borrowing under Soft Budget Constraint," Bonn Econ Discussion Papers 24/2006, University of Bonn, Bonn Graduate School of Economics (BGSE).
    17. César Martinelli & Akihiko Matsui, 2002. "Policy Reversals and Electoral Competition with Privately Informed Parties," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 4(1), pages 39-61, January.
    18. Heidhues, Paul & Lagerlof, Johan, 2003. "Hiding information in electoral competition," Games and Economic Behavior, Elsevier, vol. 42(1), pages 48-74, January.
    19. Ernesto Crivelli & Klaas Staal, 2013. "Size, spillovers and soft budget constraints," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 20(2), pages 338-356, April.
    20. Foucart, Renaud & Schmidt, Robert C., 2019. "(Almost) efficient information transmission in elections," European Economic Review, Elsevier, vol. 119(C), pages 147-165.

    More about this item

    Keywords

    Political economics; budget constraints; budget crisis;
    All these keywords.

    JEL classification:

    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hhs:oslohe:2001_002. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Kristi Brinkmann Lenander (email available below). General contact details of provider: https://edirc.repec.org/data/heuiono.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.