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Soft budget constraint and the parastatal sector

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  • Vahabi, Mehrdad

Abstract

This paper explores the relevance of soft budget constraints (SBC) to development studies by examining the parastatal sector. The political ingredient of the SBC is discussed by focusing on two examples: 1) religious and military foundations in Iran; and 2) Fannie Mae and Freddie Mac. It presents two main findings. First, the SBC of the parastatal sector can be understood as the political economy of a predator state or state’s rent-seeking activity. Second, the state sector is more prone to the SBC compared with a decentralized competitive market, but it might be subject to a harder budget constraint in comparison with the parastatal sector.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 37926.

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Date of creation: Oct 2011
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Handle: RePEc:pra:mprapa:37926

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Keywords: soft and hard budget constraints; parastatal sector; predatory state; religious and military Foundations;

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  1. Mehrdad Vahabi, 2011. "Appropriation, violent enforcement and transaction costs : a critical survey," Post-Print hal-00629109, HAL.
  2. Acemoglu, Daron & Robinson, James A, 1998. "Why did the West Extend the Franchise? Democracy, Inequality and Growth in Historical Perspective," CEPR Discussion Papers 1797, C.E.P.R. Discussion Papers.
  3. Li, David D., 1998. "Insider control and the soft budget constraint: a simple theory," Economics Letters, Elsevier, vol. 61(3), pages 307-311, December.
  4. Kornai, Janos, 1992. "The Socialist System: The Political Economy of Communism," OUP Catalogue, Oxford University Press, number 9780198287766.
  5. Wildasin, David E., 1997. "Externalities and bailouts : hard and soft budget constraints in intergovernmental fiscal relations," Policy Research Working Paper Series 1843, The World Bank.
  6. Mehrdad Vahabi & Mohajer Nasser, 2011. "Islamic republic of Iran and Its Opposition," Post-Print hal-00629139, HAL.
  7. Kornai, Janos, 2001. "Hardening the budget constraint: The experience of the post-socialist countries," European Economic Review, Elsevier, vol. 45(9), pages 1573-1599, October.
  8. Vahabi, Mehrdad, 2006. "Ordres contradictoires et coordination destructive: le malaise iranien
    [Contradictory orders and detructive coordination: the Iranian disease]
    ," MPRA Paper 13235, University Library of Munich, Germany, revised Sep 2008.
  9. Scott, Chris, 1990. " Soft Budgets and Hard Rents: A Note," Economic Change and Restructuring, Springer, vol. 23(2), pages 117-27.
  10. Sergei Guriev & Igor Makarov & Mathilde Maurel, 2000. "Debt Overhang and Barter in Russia," William Davidson Institute Working Papers Series 339, William Davidson Institute at the University of Michigan.
  11. Mehrdad Vahabi, 2014. "Soft Budget Constraint Reconsidered," Bulletin of Economic Research, Wiley Blackwell, vol. 66(1), pages 1-19, 01.
  12. Roger Congleton, 2009. "On the political economy of the financial crisis and bailout of 2008–2009," Public Choice, Springer, vol. 140(3), pages 287-317, September.
  13. Desai, Raj M. & Olofsgard, Anders, 2006. "The political advantage of soft budget constraints," European Journal of Political Economy, Elsevier, vol. 22(2), pages 370-387, June.
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