Research On Macroeconomic And Policy Practice Under Soft Budget Constraints

This thesis researches the macroeconomic performance and policy practice under soft budget constraints.Firstly, this thesis gives instructions about the causes and properties of the soft budget constraints, and also proves the existence of soft budget constraints. The article selects two angles to do it, one of which is the information and dynamic commitment, and the other is the property right and cost separation. The former can explain the general existence problems of the soft budget constraints, the latter can explain why the socialist economy and the transition economy soft budget constraints are even more serious. This thesis develops a strict adverse selection model which can explains how information asymmetry produces soft budget constrains, not only puts the analyses of the influence from fiscal decentralization and regional competition to soft budget constraints, and the influence from policy burden into a framework, and also effectively grafts the analyze from the information and dynamic commitment and the analyze from the property right and cost separation. This can make us understand the causes and properties of the soft budget constraints in a more general framework.The view in this article is that the cost separation is not the part of the soft budget constraints, but the whole. The problem is only different of the cause leading to the cost separation. Under the private property rights, there will be cost separation, which because of information asymmetry (transaction cost), but the justice of maximizing interests under constrains means that the separation must be the smallest one under constrains. Under the private property rights, we can also have the soft budget constraints, but this kind of that is the minimum under the given information structure (transaction cost) constrain. Under the public property right, the cost separation is not only because of the requirements of the public property rights itself, but also because of the high distortion attendant with the public property rights, and the high transaction costs. That is to say under the public property rights, lacking of price information, variable high transaction costs, make the economic soft budget constraints more general and more serious. This is the reason we observed by experience that the soft budget constraints are more general and more serious in the socialist economy and the transition economy, and is also the reason why the government and public organizations provide assistance to the budget constraint body more easily, but the support body of private property rights is not universal. The all economic solution is a problem about the information structure and the incentive compatibility. And the property itself was invented precisely to solve this problem. While the public ownership and a large number of distortions exiting in the economy, the soft budget constraint is serious, but in principle, we should still understand the soft budget constraint under public property rights as the minimal one under the constraint of public property rights.In this article's view, there are only two fundamental measures to harden budget constraints(reduce the cost separation): (1) Ownership shall be privatized and defined to individuals as clarified as possible, transaction cost in the operation of private-based economy shall be lowered in the mean time with no efforts spared, and price mechanism shall be brought into full play. (2) In those innumerous public organizations and realms which have to exist, political rights shall be divided, negotiation costs concerned with how to use public assets shall be increased, and government interference shall be decreased as much as possible.Next, the article discusses the influence from soft budget constraints to the macroeconomic performance and policy practice. In the view of this article, soft budget constraints not only lead to lower the interest rate of the investment, investment is not sensitive to interest rate changes, but also lead to the propensity to consume smaller, and the multiplier effect smaller. As a result, although the effectiveness of fiscal policies is stronger, fiscal policies are relatively more effective than monetary policies in the economy under soft budget constraints, effectiveness of both fiscal and monetary policies are diminished compared to those in the economy under hard budget constraints. Just because of this less effectiveness, government has to regulate and control economy by taking such quantitive-variable controlling measures as administrative methods, controlling credit and land-use approval. So, we can not simply oppose that government regulated and controlled economy by taking such quantitive-variable controlling measures as administrative methods, controlling credit and land-use approval, but must change soft budget constraints fundamentally at first.Due to investment impulse and consumption repression under soft budget constraints, and government having to regulate and control economy by taking such quantitive-variable controlling measures as administrative methods, controlling credit and land-use approval, economic adjustment was lack of flexibility, economy showed large fluctuations, short expansions and contractions,"the live as long as relaxation","the death as long as tightening", and some characteristics different from the general market economy appeared in the before cycle, such as the price of investment goods consisting raw material rise, but the final product prices didn't rise, deflation and rapid economic growth accompanied by and so on. China's economic fluctuations result not only from common market reasons but also from special economic system and institutions producing investment impulse and consumption repression.At the last, this thesis deals with china's high economy growth and the special growth structure accompanied with, the growth property of china's economy and the growth prospect of china's economy under the Wall Street's financial crisis. In the view of this thesis, the high growth of china's economy and its special growth structure can be explained by three basic factors: emerging, transition and globalization. China's high growth in the past is the high growth under special constraints, until now, the China Miracle is essentially another East Asian Miracle. When the constraints shift after, china's economy must achieve growth pattern.The Wall Street financial crisis is not an easy problem of financial system weaknesses and lack of financial supervision, but a global economy's natural adjustment process after the abnormal high growth under certain conditions, which are mainly the IT revolution and the sustained beneficial effects for supply-sides due to the collapse of the Berlin Wall. Since the collapse of the Berlin Wall is not copied, and the new technology revolution which can replace the IT revolution can not be formed in the short time, the sustained high growth of the word economy in the last cycle is the abnormal high growth under certain conditions. The Wall Street financial crisis means that the favorable external conditions which China's high growth achieved by have been changed. So China's economy must achieve the fundamental transition of the growth structure, economy growth dependences changed from investment and overseas market demands to domestic demands (mainly domestic consumption). But first we should solve domestic economy's problems of investment impulse and consumption repression because of soft budget constraints.The essential measure to solve the macroeconomic unbalance caused by soft budget constraints is not to adjust demand by using fiscal and monetary policies, but by reforming. The future problem of China's economy is to stimulate domestic consumption, but not an easy problem. If the soft budget constrains are not solved, the investment impulse will not be solved, the overproduction and the inefficient investment will not be solved; if the soft budget constraints and the systematic obstacles caused by consumption repression are not solved, the consumption will not be stimulated really. In face of production capacity surplus and consumption repression as well as regression of overseas absorption from hyper-growth to normal-growth, fiscal overexpansion may land China's economy into deflation again, and overexpansion of both fiscal and monetary policies may put China's economy at the risk of stagflation.