A Study Of The Soft Budget Constraint And Our Local Government Investment During The Economy Transition Period

Local government investment is the endogenetic variable for the economic growth now, which plays an important role in improving infrastructure and accelerating economy development. But there are many badly hidden dangers for the economy development , such as short-term behaviors, blindness pursuing after interests, no cost counting, repetitive construction .It is of great significance searching the reasons of the local government investment expansion and standardize the investment behavior of local government.Making a comprehensive view of the reasons for the investment expansion of local government, we can find that the soft budget constraint impenetrates every factor. But, the present study about this only regards the soft budget constraint as the sole reason, which lacks of a comprehensive and systematic studying on the interrelation between them. This paper analyses the institutional genesis of the soft budget constraint for local government investment, the motive of the local government's investment and interrelated game analysis, basing on the present institutional environment. In the end, this paper makes some pertinence suggests.Institution is characterized as fundamentality, integrality, stability and standardization. So we can start on the institutional genesis of the soft budget constraint when we study the investment behaviors of local government in transition economy. The paper analysis the subject under six mechanisms as follows: centralization and fiscal decentralization, incomplete investment and financial systems, ambiguous property rights systems, incentive mechanism and achievement-projects legalization, restriction mechanism.The motive of the local government's investment can be summarized in two respects: The regional social welfare maximization and officers' personal welfare maximization. They can only be consistent with each other on the basis of economic development. Therefore, the most important task for local government is to develop economy which causes partiality of impulse of expansion.The investment behavior of the local government is a chess match behavior between the local and central government , between local government and micro main bodies, among local governments. The game behaviors of local and central government and the game behaviors among local government and micro main body are beneficial for local government because of information asymmetry. Furthermore, it can cause the difficulty for central macro adjustments. On the other hand, local intergovernmental chess matches bring the repetitive construction and the excessive competition , which aggravates investment impulsion and malignant competition.The paper makes some pertinence suggestions in the end . The prime measure for rationalizing behaviors' of local governmental investment is to advance the reform of system further and to innovate the existing system: constituting scientific and rational merit system, advancing the reform of fiscal management, quickening the reform of investment and financing systems, proceeding with property right reform and improving investment environment.