Institutional Environment, Local Government Investment Impulse and Local Soft Budget
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| Title | Institutional Environment, Local Government Investment Impulse and Local Soft Budget
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| Author | Chen Zhiyong and Chen Sixia |
| Organization | Zhongnan University of Economics and Law, Public Finance and Taxation Department |
| Email | chenzy219@vip.sina.com |
| Key Words | Institutional Environment; Investment Impulse; Soft Budget; BFI |
| Abstract | For a long time, the fiscal local budget has been short of constraint, leading to the over-debt of local governments. There comes an important problem of how to consolidate the local budget and adjust the excess increase of local expenditures. This paper makes up the soft budget index by using the provincial data, following the method of constructing the Blanchard Fiscal Index. Furthermore, it studies what caused the soft budget of local government and how to manage it successfully. We found that the good institutional environment is good at constraining the excess growth of local budget. Meanwhile, the invest impulse of local government inspired by economic growth competiveness, is the fundamental cause of local soft budget. When discussing about the mechanism, we found that the composition of local expenditures would be distorted when institutional environment got worse, as local governments would invest more in constructing areas. And this has largely decreased the probabilities of local budget adjustment. These all concludes that we should improve the institutional environment, as well as changing the distorted incentives that impelled the over-impulse of local government investment. |
| Serial Number | WP602 |
| Time | 2014-08-04 |
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