Soft budget constraints: An institutional interpretation of stylised facts in economic transformation in Central Eastern Europe
Among the stylised facts of economic transformation in East Central Europe are the following unpleasant developments-: the reemergence of fiscal deficits, the resilliance of medium inflation, and sluggish output recovery. This paper reviews the major interpretations found in the literature, including structuralist and demand-led approaches, and argues specifically against macroeconomic policy reversal. The concept of soft budget constraints for the state owned enterprise sector is used to develop an institutional interpretation of macroeconomic imbalances in the transformation process. Appropriate indicators of budget softness are derived and applied to the Polish evidence. The results support the hypothesis that current macroeconomic policy concerns are related to the continuing tolerance of loss making firms.The causes of soft budget constraints are found in perverse incentives in the financial sector, unclarified ownership rights, and the political reluctance to face large scale unemployment. A strict enforcement of bankruptcy is urged as a precondition for successful structural transformation.
|Date of creation:||1992|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +49 431 8814-1
Fax: +49 431 85853
Web page: http://www.ifw-kiel.de
More information through EDIRC
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.:
- Siebert, Horst, 1992. "Real adjustment in the transformation process: risk factors in East Germany," Kiel Working Papers 507, Kiel Institute for the World Economy.
- Jeffrey D. Sachs, 1990. "Introduction to "Developing Country Debt and Economic Performance, Volume 2: The Country Studies -- Argentina, Bolivia, Brazil, Mexico"," NBER Chapters, in: Developing Country Debt and Economic Performance, Volume 2: Country Studies—Argentina, Bolivia, Brazil, Mexico, pages 1-38 National Bureau of Economic Research, Inc.
- J. Williamson, 1992. "The Eastern transition to a market economy: a global perspective," LSE Research Online Documents on Economics 21055, London School of Economics and Political Science, LSE Library.
- 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.
- J Williamson, 1992. "The Eastern Transition to a Market Economy: A Global Perspective," CEP Occasional Papers 02, Centre for Economic Performance, LSE.
- Hare, Paul G & Hughes, Gordon, 1992.
"Industrial Policy and Restructuring in Eastern Europe,"
CEPR Discussion Papers
653, C.E.P.R. Discussion Papers.
- Hughes, Gordon & Hare, Paul G, 1992. "Industrial Policy and Restructuring in Eastern Europe," Oxford Review of Economic Policy, Oxford University Press, vol. 8(1), pages 82-104, Spring.
- Aspe, Pedro, 1992. "Macroeconomic stabilization and structural change in Mexico," European Economic Review, Elsevier, vol. 36(2-3), pages 320-328, April.
- Siebert, Horst, 1991. "The transformation of Eastern Europe," Kiel Discussion Papers 163, Kiel Institute for the World Economy (IfW).
- M Schaffer, 1991. "A Note in the Polish State-Owned Enterprise Sector in 1990," CEP Discussion Papers dp0036, Centre for Economic Performance, LSE.
- van Wijnbergen, S., 1982. "Stagflationary effects of monetary stabilization policies : A quantitative analysis of South Korea," Journal of Development Economics, Elsevier, vol. 10(2), pages 133-169, April.
- Begg, David & Portes, Richard, 1992.
"Enterprise Debt and Economic Transformation: Financial Restructuring of the State Sector in Central and Eastern Europe,"
CEPR Discussion Papers
695, C.E.P.R. Discussion Papers.
- David Begg & Richard Portes, 1993. "Enterprise debt and economic transformation (Financial restructuring of the state sector in Central and Eastern Europe)," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 1(1), pages 116-117, 01.
- Schmieding, Holger, 1991. "From socialism to an institutional void: Notes on the nature of the transformation crisis," Kiel Working Papers 480, Kiel Institute for the World Economy.
- Hare, Paul G., 1982. "Economics of shortage and non-price control," Journal of Comparative Economics, Elsevier, vol. 6(4), pages 406-425, December.
- Agarwal, Jamuna Prasad & Gubitz, Andrea & Nunnenkamp, Peter, 1991. "Foreign direct investment in developing countries : the case of Germany," Open Access Publications from Kiel Institute for the World Economy 423, Kiel Institute for the World Economy (IfW).
- Kornai, Janos, 1986.
"The Soft Budget Constraint,"
Wiley Blackwell, vol. 39(1), pages 3-30.
- Coricelli, F. & Revenga, A., 1992. "Wage Policy During the Transition to a Market Economy: Poland 1990-91," World Bank - Discussion Papers _71, World Bank.
- Brada, Josef C & King, Arthur E, 1992. " Is There a J-Curve for the Economic Transition from Socialism to Capitalism?," Economic Change and Restructuring, Springer, vol. 25(1), pages 37-53.
- Langhammer, Rolf J., 1984. "Schwarzafrikas wirtschaftliche Malaise," Kiel Discussion Papers 104, Kiel Institute for the World Economy (IfW).
- Calvo, Guillermo A & Coricelli, Fabrizio, 1992. "Stagflationary Effects of Stabilization Programs in Reforming Socialist Countries: Enterprise-Side and Household-Side Factors," World Bank Economic Review, World Bank Group, vol. 6(1), pages 71-90, January.
When requesting a correction, please mention this item's handle: RePEc:kie:kieliw:549. 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: (Dieter Stribny)
If references are entirely missing, you can add them using this form.