Soft Budget Constraints, Firm Commitments and the Social Safety Net

26 Pages Posted: 15 Feb 2006

See all articles by Daniel Hardy

Daniel Hardy

International Monetary Fund (IMF)

Date Written: October 1991

Abstract

It is shown that the inefficiencies created by the "soft" budget constraint, enjoyed by enterprises in Eastern Europe and elsewhere, will continue so long as governments are unable credibly to threaten not to bail out loss-makers. Commitment to a "hard" budget constraint can best be achieved by the institution of a suitable social safety net. The burden on the social safety net can be reduced by the (endogenous) development of financial markets.

JEL Classification: D78, H32, J65, P26

Suggested Citation

Hardy, Daniel, Soft Budget Constraints, Firm Commitments and the Social Safety Net (October 1991). IMF Working Paper No. 91/98, Available at SSRN: https://ssrn.com/abstract=885085

Daniel Hardy (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
93
Abstract Views
1,100
Rank
502,565
PlumX Metrics