Soft-Budget Constraints and Local Expenditures

Takero Doi and Toshihiro Ihori
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Toshihiro Ihori: Faculty of Economics, University of Tokyo

No CIRJE-F-422, CIRJE F-Series from CIRJE, Faculty of Economics, University of Tokyo

Abstract: This paper investigates how the soft budget constraint with grants from the central government to local governments tends to exaggerate inefficient local expenditures. We first develop a theoretical model, which explains soft budget problem in a multi-government setting. We then show that in Japan's case local governments implemented inefficient public investments and hence the bad outcome of soft budget problem occurred in the 1990s.

Pages: 33pages
Date: 2006-05
New Economics Papers: this item is included in nep-ure
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:tky:fseres:2006cf422

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