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Dynamic Commitment and the Soft Budget Constraint An Empirical Test
Stockholm University, Faculty of Social Sciences, Department of Economics.
2010 (English)In: American Economic Journal. Economic Policy, ISSN 1945-7731, Vol. 2, no 3, 154-179 p.Article in journal (Refereed) Published
Abstract [en]

This paper develops an empirical framework for the problem of soft budgets which is explicitly based on a dynamic commitment problem, i e, the inability of a supporting organization to commit itself not to extend more resources ex post to a budget-constrained organization than it was prepared to provide ex ante Swedish local governments are used as a testing ground since the central government distributed a large number of fiscal transfers The estimated soft-budget effect is economically significant on average a local government Increases its debt by more than 20 percent by going from a hard to a soft budget constraint (JEL D82, G32, L32)

Place, publisher, year, edition, pages
2010. Vol. 2, no 3, 154-179 p.
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URN: urn:nbn:se:su:diva-51217DOI: 10.1257/pol.2.3.154ISI: 000284559700007OAI: diva2:387806
authorCount :1Available from: 2011-01-14 Created: 2011-01-10 Last updated: 2011-02-16Bibliographically approved

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Pettersson-Lidbom, Per
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