The Soft Budget Constraint — The Emergence, Persistence and Logic of an Institution

  • Gun Eriksson Skoog

Table of contents

  1. Front Matter
    Pages i-xix
  2. Gun Eriksson Skoog
    Pages 1-18
  3. Gun Eriksson Skoog
    Pages 69-145
  4. Gun Eriksson Skoog
    Pages 147-222
  5. Gun Eriksson Skoog
    Pages 223-306
  6. Gun Eriksson Skoog
    Pages 307-324
  7. Gun Eriksson Skoog
    Pages 325-327
  8. Back Matter
    Pages 329-400

About this book


This is a story of the soft budget constraint. It seeks an answer to a paradox: the prevalence of the soft budget constraint in spite of the tremendous inefficiencies that it gives rise to, and its persistence in spite of reform of the system of which it is an integral part. The story aims at increasing our understanding of why the phenomenon exists. By studying the case of state­ in Tanzania before, during and after socialism, an explanation of the owned enterprises emergence, persistence and logic of the soft budget constraint is suggested. This introductory chapter presents an argument showing why this story is worth telling. It discusses the research topic and how the problem it presents is attacked. THE SOFT BUDGET CONSTRAINT The soft budget constraint is today a popular metaphor. Originally it was seen as a characteristic of the socialist system. It refers to the tendency of primarily state-owned enterprises to have their liquidity gaps or losses accommodated by the state, or some other external funding body, and to the resulting expectations of such bail-out. The concept was coined by the Hungarian economist Hmos Kornai. ' He distinguishes between four major forms of external financial assistance that contribute to the soft budget constraint: soft subsidies, soft taxation, soft credit and soft 2 administrative pricing.


development performance socialism systemic change transition

Authors and affiliations

  • Gun Eriksson Skoog
    • 1
  1. 1.Stockholm School of Economics — EFI The Economic Research InstituteSweden

Bibliographic information