Questioning the Soft Budget Constraint

Changlin Luo ()

Annals of Economics and Finance, 2014, vol. 15, issue 1, 403-412

Abstract: First, this paper claims that the soft budget constraint is a contradiction in terms by showing that each "soft" budget line is in fact an incorrect one. By classifying the problems that were formerly conglomerated under the name of the "soft budget constraint," we show that a "hard" budget constraint exists for each specific problem. This leads to the realization that each of these problems originally belonged in a different analytic framework, and does not need to be related to the soft budget constraint. Finally, we illustrate how the former conclusions drawn from the "soft" perspective can be adjusted to form better interpretations under the original frameworks. Hence, we conclude that there is no such thing as the soft budget constraint.

Keywords: Soft budget constraint; Dynamic commitment; Paternalism; Competitive rent seeking (search for similar items in EconPapers)
JEL-codes: H72 H77 P20 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:cuf:journl:y:2014:v:15:i:1:luochanglin

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