Economics, Econometrics and Finance
8 years ago

Soft Budget Constraints Debunked: A Paradigm Shift in Financial Management

Annals of economics and finance
Questioning the Soft Budget Constraint
Changlin Luo

Paper Summary

The soft budget constraint doesn't actually exist. Each budget problem has its own hard constraint. Problems previously linked to the soft budget constraint actually belong in different frameworks. Adjusting interpretations under the original frameworks leads to better conclusions.

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