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The Soft Budget Constraint Problem in a Dynamic Central Leadership Model

Author

Listed:
  • Hiromasa Takahashi

    (Faculty of International Studies, Hiroshima City University)

  • Akihiro Suzuki

    (Faculty of Literature and Social Sciences, Yamagata University)

  • Toru Takemoto

    (Faculty of Economics, Meikai University)

Abstract

The authors deal with a certain type of timing problem with the central government's allocation of subsidies to local governments, called a ``soft budget constraint (SBC) problem.'''' In fiscal science, it has been indicated that the interregional redistribution policy of the central government causes incentive problems such as excess expenditure or excess debt. However, as insignificant amount of the literature has applied a multi-period model to explain the SBC problem occuring despite the possibility of the existence of intertemporal distortion in an SBC situation. Therefore, the authors examine the problem in two-period models, which are the easiest multi-period models. The authors will demonstrate that the path of occurrence of the distortion caused by subsidization varies according to the timing of the subsidy offer.

Suggested Citation

  • Hiromasa Takahashi & Akihiro Suzuki & Toru Takemoto, 2008. "The Soft Budget Constraint Problem in a Dynamic Central Leadership Model," Economics Bulletin, AccessEcon, vol. 8(1), pages 1-10.
    • Handle: RePEc:ebl:ecbull:eb-08h70010
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    References listed on IDEAS

    as
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    3. Nobuo Akai & Motohiro Sato, 2005. "leadership meets soft budget," CIRJE F-Series CIRJE-F-391, CIRJE, Faculty of Economics, University of Tokyo.
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    More about this item

    Keywords

    decentralized leadership;

    JEL classification:

    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations

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