Enforcing Hard Budget Constraints

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Enforcing Hard Budget Constraints

• Introduction
• The Problem Bailouts and Soft Budget
  Constraints
• Two Types of Solution
• Markets and Hierarchies
• Three Key Institutions
• Fiscal
• Political
• Financial
• Conclusions

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Intergovernmental Fiscal Institutions

• Clarity in the Assignment of Revenue and
  Expenditure Authority
• Powers and Revenues that Match Responsibilities
• Intergovernmental Transfers
• Levels of Transfer-Dependence
• The Design of Transfer Programs
• Rules versus Discretion
• Marginal Incentives

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Political Institutions

• Legislatures
• Logrolling and Bargaining
• The Organization of Political Parties
• Presidents
• The Problem of Federalism
• Delegation
• Courts, Arbitrators, and Central Banks

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Financial Institutions

• Government Transactions
• The Central Government and its Agencies
• Sub-national Banks
• Local Public Enterprises
• Local Credit Markets
• Rules and Regulations Imposed by the Center
• Fiscal Responsibility Laws
• Guarding the Guardians Delegation Revisited

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Conclusions

• There is more than one way to achieve fiscal
  discipline.
• Most countries can benefit from reforms aimed at
  strengthening market oversight
• These reforms should provide incentives for
  voters and creditors to oversee local decisions
• At early stages of decentralization, however,
  markets may not be enough
• Improved central oversight need not undermine the
  growth of market discipline

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