Politicians and soft budget constraints

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Dalen, D.M., E.R. Moen and C. Riis




HERO Skrifter
Nummer i serie: 2

Sammendrag (engelsk)

We study soft budget constraints from the perspective of political economics. A partly partisan government confronts a budget crisis in a politically important sector, e.g. like the health care sector. To what extent the government wants to make additional grants to the sector depends on economic conditions and on the preferences of the government, both unknown to the electorate. Thus, the government’s budget response gives a signal of its preferences, and may thereby in‡uence the probability that the government is re-elected. As a result, the handeling of a budget crisis becomes ine¢cient even from an ex post point of view, in the sense that it does not react adequately to changing economic conditions.

Prosjekt info:

Oppdragsgiver: Norges forskningsråd
Oppdragsgivers prosjektnr.:
Frisch prosjekt: 4101 - Økonomi og helse