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Politicians and soft budget constraints

Author

Listed:
  • Dalen, Dag Morten

    (BI Norwegian School of Management)

  • Moen, Espen R.

    (BI Norwegian School of Management)

  • Riis, Christian

    (BI Norwegian School of Management)

Abstract

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 influence the probability that the government is re-elected. As a result, the handeling of a budget crisis becomes inefficient even from an ex post point of view, in the sense that it does not react adequately to changing economic conditions.

Suggested Citation

  • Dalen, Dag Morten & Moen, Espen R. & Riis, Christian, 2009. "Politicians and soft budget constraints," HERO Online Working Paper Series 2001:2, University of Oslo, Health Economics Research Programme.
    • Handle: RePEc:hhs:oslohe:2001_002
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    File URL: http://www.hero.uio.no/publicat/2001/HERO2001_2.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Political economics; budget constraints; budget crisis;
    All these keywords.

    JEL classification:

    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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