Hardened Budgets and Enterprise Restructuring: Theory and an Application to Romania

Fabrizio Coricelli and Simeon Djankov

No 2950, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We identify the presence of soft budgets and analyse their impact on enterprise restructuring in Romania over the initial transition period. A simple analytical framework is developed to show that hardened budget constraints foster rationalization of costs, but not active restructuring. The latter requires availability of external financing. The model emphasises the importance of the credibility of hard budgets. The empirical findings are consistent with the predictions of the model. Using a sample of over 4,000 Romanian enterprises during 1992-95, we show that hardened budget constraints induce labour shedding. There is no evidence of positive effects on active restructuring, which we define as new investments.

Keywords: Romania; Soft budgets (search for similar items in EconPapers)
JEL-codes: G34 (search for similar items in EconPapers)
Date: 2001-09
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

Downloads: (external link)
https://cepr.org/publications/DP2950 (application/pdf)

Related works:
Journal Article: Hardened Budgets and Enterprise Restructuring: Theory and an Application to Romania (2001)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:2950

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP2950

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().