Decentralization and the Challenge of Hard Budget Constraints

Since the early 1980s fiscal and political decentralization have spread around the world. But decentralization can encourage dangerous opportunistic behavior by state and local officials. Left unrestricted, such opportunism can undermine macroeconomic stability and other objectives. The most pressing manifestation of this problem is the softening of subnational budget constraints. The impact of decentralization on public sector efficiency and macroeconomic stability depends on a country's ability to prevent lower-level governments from passing on their liabilities to higher-level governments. This note draws on 11 countries to identify institutional factors associated with hard and soft budget constraints and extract policy lessons for other countries.

Bibliographic Details

Main Author:	Rodden, Jonathan
Format:	Brief biblioteca
Language:	English
Published:	World Bank, Washington, DC 2000-07
Subjects:	DECENTRALIZATION IN GOVERNMENT, BUDGETS, SUBNATIONAL GOVERNMENT, FINANCIAL INSTITUTIONS ACCOUNTABILITY, ACCOUNTING, ACCOUNTING PRINCIPLES, ASSETS, AUDITING, AUTHORITY, BANKRUPTCY, BANKRUPTCY LAWS, BANKRUPTCY PROCEDURES, BORROWING, CAPITAL MARKETS, CENTRAL BANKS, CENTRAL GOVERNMENT, CENTRAL GOVERNMENTS, CITIZENS, COALITIONS, CREDIT MARKETS, CREDIT RATINGS, DEBT, DECENTRALIZATION, DEFICITS, DEMOCRACY, EMPLOYMENT, FEDERALISM, FINANCIAL CRISIS, FINANCIAL INSTITUTIONS, FISCAL, FISCAL DECENTRALIZATION, FISCAL DISCIPLINE, FISCAL FEDERALISM, FISCAL PERFORMANCE, FISCAL RESPONSIBILITY, GOVERNMENT CONTROLS, GOVERNMENT PERFORMANCE, HARD BUDGET CONSTRAINTS, INSTITUTIONAL MECHANISMS, INTERGOVERNMENTAL TRANSFERS, LEGISLATION, LEGISLATURE, LOCAL AUTONOMY, LOCAL GOVERNMENT, LOCAL GOVERNMENTS, LOCAL REVENUE, LOCAL SPENDING, LOCAL TAX, MACROECONOMIC STABILITY, MARKET DISCIPLINE, POLITICAL INSTITUTIONS, POLITICIANS, PRESIDENCY, PRIVATIZATION, PUBLIC GOODS, PUBLIC SECTOR, PUBLIC SECTOR EFFICIENCY, SOFT BUDGET CONSTRAINTS, STATE ENTERPRISES, SUBNATIONAL GOVERNMENTS, TAX ADMINISTRATION, TRANSITION ECONOMIES, TRANSPARENCY,
Online Access:	http://documents.worldbank.org/curated/en/2000/07/828347/decentralization-challenge-hard-budget-constraints http://hdl.handle.net/10986/11426
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