Advanced Search
MyIDEAS: Login to save this paper or follow this series

The Macroeconomics of Massive Giveaways

Contents:

Author Info

  • Fabian Gouret

    (ROSES)

Registered author(s):

    Abstract

    In a framework similar to the models of expectation on economic policy, we purpose a model where the government subsidizes firms privatized by massive giveaways to the managers who are empire- builders. The government injects funds because its aim is to avoid a drastic fall of output when a negative external macroshock hits the country. The consequence is that the economy can be locked into a soft budget constraint equilibrium and a path of underdevelopment. At the heart of the model there are i) the behavior of managers, ii) the macroshock and iii) the credibility of the government when it affirms that it stops subsidies. Therefore, we argue that the model explains why the soft budget constraint syndrome is worse in the CIS than in the Central European Countries: massive giveaways, largely used in the CIS, do not avoid that unproductive managers divert funds when an important macroshock hits the economy (worse in the CIS) and governments are not credible. Finally we derive from the model some policy recommendations: First, to create an economic union with Articles prohibiting any subsidies which favor unrestructured Firms; second, to privatize and restructure the banking system, i.e. to apply standard risk analysis technics in order to strengthen the budget constraint.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://128.118.178.162/eps/dev/papers/0403/0403001.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by EconWPA in its series Development and Comp Systems with number 0403001.

    as in new window
    Length:
    Date of creation: 04 Mar 2004
    Date of revision:
    Handle: RePEc:wpa:wuwpdc:0403001

    Note: Type of Document - pdf; prepared on WinXP; to print on A4;
    Contact details of provider:
    Web page: http://128.118.178.162

    Related research

    Keywords: Transition; privatization; soft budget constraint;

    Find related papers by JEL classification:

    This paper has been announced in the following NEP Reports:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. 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.
    2. Flood, Robert & Marion, Nancy, 1999. "Perspectives on the Recent Currency Crisis Literature," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 4(1), pages 1-26, January.
    3. Hare, Paul G & Hughes, Gordon, 1991. "Competitiveness and Industrial Restructuring in Czechoslovakia, Hungary and Poland," CEPR Discussion Papers 543, C.E.P.R. Discussion Papers.
    4. J. Kornai, 2000. "Ten Years After "The Road to a Free Economy": The Author's Self-evaluation," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 12.
    5. Oleh Havrylyshyn, 2001. "Recovery and Growth in Transition: A Decade of Evidence," IMF Staff Papers, Palgrave Macmillan, vol. 48(4), pages 4.
    6. Mathias Dewatripont & Eric Maskin, 2004. "Credit and efficiency in centralized and decentralized economies," ULB Institutional Repository 2013/9605, ULB -- Universite Libre de Bruxelles.
    7. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August.
    8. Aghion, P. & Blanchard, O.J., 1993. "On the Speed of Transition in Central Europe," Working papers 93-8, Massachusetts Institute of Technology (MIT), Department of Economics.
    9. Clifford Zinnes & Yair Eilat & Jeffrey Sachs, 2001. "The Gains from Privatization in Transition Economies: Is "Change of Ownership" Enough?," IMF Staff Papers, Palgrave Macmillan, vol. 48(4), pages 7.
    10. Brian Pinto & Marek Belka & Stefan Krajewski, 1993. "Transforming State Enterprises in Poland: Evidence on Adjustment by Manufacturing Firms," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 24(1), pages 213-270.
    11. Mathias Dewatripont & Gerard Roland, 2000. "Soft Budget Constraints, Transition, and Industrial Change," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 156(1), pages 245-, March.
    12. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-29, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpdc:0403001. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA).

    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 references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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