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Repression and Reform of the Financial Systems in India and China

In: Banking Reform in India and China

Author

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  • Lawrence Sáez

Abstract

While transition economies aim to introduce market discipline into the operation of the domestic financial system, these countries suffer the residual impact of what the economist Janos Kornai (1980) labeled soft budget constraints. Soft budget constraints were defined by him as the situation where “the strict relationship between expenditure and earnings has been relaxed, because excess expenditure over earnings will be paid by some other institution, typically the state” (p. 4). Under these conditions, Kornai (1986) later suggested that soft budget constraints had many interrelated consequences on individual firms including weak price responsiveness, low allocative efficiency, and excess demand.

Suggested Citation

  • Lawrence Sáez, 2004. "Repression and Reform of the Financial Systems in India and China," Palgrave Macmillan Books, in: Banking Reform in India and China, chapter 0, pages 75-99, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-4039-8125-7_5
    DOI: 10.1057/9781403981257_5
    as

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