Soft budget constraint and the parastatal sector

Vahabi, Mehrdad (2011): Soft budget constraint and the parastatal sector.

Abstract

This paper explores the relevance of soft budget constraints (SBC) to development studies by examining the parastatal sector. The political ingredient of the SBC is discussed by focusing on two examples: 1) religious and military foundations in Iran; and 2) Fannie Mae and Freddie Mac. It presents two main findings. First, the SBC of the parastatal sector can be understood as the political economy of a predator state or state’s rent-seeking activity. Second, the state sector is more prone to the SBC compared with a decentralized competitive market, but it might be subject to a harder budget constraint in comparison with the parastatal sector.

• Item Type: MPRA Paper
• Language: English
• Keywords: soft and hard budget constraints, parastatal sector, predatory state, religious and military Foundations
• Subjects: D - Microeconomics > D7 - Analysis of Collective Decision-Making > D73 - Bureaucracy ; Administrative Processes in Public Organizations ; Corruption; D - Microeconomics > D2 - Production and Organizations > D21 - Firm Behavior: Theory; H - Public Economics > H1 - Structure and Scope of Government > H11 - Structure, Scope, and Performance of Government; D - Microeconomics > D7 - Analysis of Collective Decision-Making > D74 - Conflict ; Conflict Resolution ; Alliances ; Revolutions; G - Financial Economics > G3 - Corporate Finance and Governance > G38 - Government Policy and Regulation; H - Public Economics > H8 - Miscellaneous Issues > H83 - Public Administration ; Public Sector Accounting and Audits; D - Microeconomics > D7 - Analysis of Collective Decision-Making > D72 - Political Processes: Rent-Seeking, Lobbying, Elections, Legislatures, and Voting Behavior; E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models > E11 - Marxian ; Sraffian ; Kaleckian; D - Microeconomics > D0 - General > D01 - Microeconomic Behavior: Underlying Principles

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