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Soft budget constraint and the parastatal sector

  • Vahabi, Mehrdad

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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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
Date of revision:
Handle: RePEc:pra:mprapa:37926
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  1. 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.
  2. Kornai, Janos, 1992. "The Socialist System: The Political Economy of Communism," OUP Catalogue, Oxford University Press, number 9780198287766, July.
  3. David E. Wildasin, 2001. "Externalities and Bailouts: Hard and Soft Budget Constraints in Intergovernmental Fiscal Relations," Public Economics 0112002, EconWPA.
  4. Mehrdad Vahabi, 2011. "Appropriation, violent enforcement, and transaction costs: a critical survey," Public Choice, Springer, vol. 147(1), pages 227-253, April.
  5. Janos Kornai & Eric Maskin & Gerard Roland, 2002. "Understanding the Soft Budget Constraint," Economics Working Papers 0019, Institute for Advanced Study, School of Social Science.
  6. Mehrdad Vahabi, 2010. "Ordres contradictoires et coordination destructive : Le malaise iranien," Post-Print hal-00629134, HAL.
  7. repec:oup:qjecon:v:115:y:2000:i:4:p:1167-1199 is not listed on IDEAS
  8. Mehrdad Vahabi & Mohajer Nasser, 2011. "Islamic republic of Iran and Its Opposition," Post-Print hal-00629139, HAL.
  9. Sergei Guriev & Igor Makarov & Mathilde Maurel, 2002. "Debt Overhang and Barter in Russia," Post-Print halshs-00468633, HAL.
  10. Li, David D., 1998. "Insider control and the soft budget constraint: a simple theory," Economics Letters, Elsevier, vol. 61(3), pages 307-311, December.
  11. Kornai, Janos & Weibull, Jorgen W., 1983. "Paternalism, buyers' and sellers' market," Mathematical Social Sciences, Elsevier, vol. 6(2), pages 153-169, November.
  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. Mehrdad Vahabi, 2014. "Soft Budget Constraint Reconsidered," Bulletin of Economic Research, Wiley Blackwell, vol. 66(1), pages 1-19, 01.
  14. 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.
  15. János Kornai, 2014. "The soft budget constraint," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 64(supplemen), pages 25-79, November.
  16. Scott, Chris, 1990. " Soft Budgets and Hard Rents: A Note," Economic Change and Restructuring, Springer, vol. 23(2), pages 117-27.
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