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Employment burden, government ownership and soft budget constraints: Evidence from a Chinese enterprise survey

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  • Li, Lixing

Abstract

This paper investigates two competing theories of soft budget constraint (SBC), namely the ownership hypothesis and the policy burden hypothesis. While the ownership hypothesis attributes the SBC problem to government ownership, the policy burden hypothesis predicts that privatization would not eliminate the SBC problem, as long as the major policy burden - maintaining employment - is not removed from enterprises. Using a panel dataset from a survey of Chinese enterprises, I conduct empirical tests on these two competing hypotheses. I explicitly address endogeneity and data-censoring problems by using instruments and estimating a two-step tobit model. The test results support the policy burden hypothesis but not the ownership hypothesis. My finding emphasizes the importance of creating a sound social security system in the process of China's enterprise reform.

Suggested Citation

  • Li, Lixing, 2008. "Employment burden, government ownership and soft budget constraints: Evidence from a Chinese enterprise survey," China Economic Review, Elsevier, vol. 19(2), pages 215-229, June.
  • Handle: RePEc:eee:chieco:v:19:y:2008:i:2:p:215-229
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    Cited by:

    1. Goering, Gregory E. & Sarangi, Sudipta, 2012. "Durable goods produced by state owned enterprises," Economic Modelling, Elsevier, vol. 29(3), pages 893-899.
    2. Liu, Xiaojie & Shen, Jim Huangnan & Deng, Kent, 2016. "A rational path towards a Pareto optimum for reforms of large state-owned enterprise in China, past, present and future," Economic History Working Papers 67019, London School of Economics and Political Science, Department of Economic History.
    3. World Bank, 2011. "Climate Change and Fiscal Policy : A Report for APEC," World Bank Other Operational Studies 2734, The World Bank.
    4. Shen, Huangnan & Fang, Lei & Deng, Kent, 2017. "Rise of ‘Red Zaibatsu’ in China: entrenchment and expansion of large state-owned enterprises, 1990-2016," Economic History Working Papers 75214, London School of Economics and Political Science, Department of Economic History.
    5. János Kornai, 2014. "The soft budget constraint," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 64(supplemen), pages 25-79, November.
    6. Kornai, János, 2014. "Bevezetés A puha költségvetési korlát című kötethez
      [Introduction to the author s volume entitled Soft Budget Constraint]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(7), pages 845-897.

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