Externalities, Incentives, and Economic Reforms
The paper emphasizes the role of institutions and incentives in the presence of externalities. An economy with multiple public decision makers is likely to experience "overspending," "undertaxing," "overborrowing," and "overinflation" unless effective institutions exist for overcoming coordination failure. External financing may weaken incentives for adjustment over the longer run unless assistance is made conditional on fundamental institutional reforms. The paper also analyses reforms that strengthen incentives to provide effort. Uncertainty regarding future taxes reduces present effort and the responsiveness of output to market signals. In addition, the paper addresses the adverse effects of bank insurance and soft budget constraints.
|Date of creation:||Jun 1990|
|Date of revision:|
|Publication status:||published as Bulletin of Economic Research, October 1993, pp. 305-315|
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- Alesina, A. & Drazen, A., 1991.
"Why Are Stabilizations Delayed?,"
6-91, Tel Aviv - the Sackler Institute of Economic Studies.
- Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
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NBER Working Papers
2740, National Bureau of Economic Research, Inc.
- Casella, Alessandra & Feinstein, Jonathan, 1988. "Management of a Common Currency," Department of Economics, Working Paper Series qt5jv1h7nt, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Alessandra Casella and Jonathan Feinstein., 1988. "Management of a Common Currency," Economics Working Papers 8891, University of California at Berkeley.
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