Can Migration Affect the Decision of Governmental Fiscal Bailout?
In general, it has been revealed that grants from the central government to local government, which does not undertake responsibility for local finance, cannot guarantee efficient financial management. This observation is based on the recognition through experiments that the central government bails out local governments when they face a default caused by their lax management. This problem is called a soft budget constraint, which was defined by Kornai (Econometrica 47:801–820, 1979; Economics of shortage. North-Holland, Amsterdam, 1980; Kyklos 39:3–30, 1986) as occurring when a bailout from the central government incurs local financial management that allows for ex post bailout to the local governments (Akai (Financ Rev 82:79–101, 2006, In Japanese) summarizes previous theoretical studies on soft budget constraint in detail.). In the case of Korea, Oh (Kor J Public Adm 46(3):121–143, 2008) analyzed the circumstance of Korean local finance and concluded that the soft budget constraint problem arises readily in Korea because local finance has a high level of dependence on the central government due to the serious local tax revenue imbalance, and this high dependence impedes the autonomy and responsibility of the local government.
This work was supported by the National Research Foundation of Korea Grant funded by the Korean government (NRF-2014S1A3A2044643).
- Akai, N. 2006. Contractual problems in inter-governmental relationships (central & regional) – With focus on problems of soft budget constraint. Financial Review 82: 79–101 (In Japanese).Google Scholar
- Kornai, J. 1980. Economics of shortage. Amsterdam: North-Holland.Google Scholar
- Lee, W. 2016. Fiscal decentralization and soft budget constraint. The Journal of Social science 23(1): 261–278 (In Korean).Google Scholar
- Ministry of the Interior, Korea. 2015. Summary of Local Budget for FY.Google Scholar
- Ministry of Internal Affairs and Communications, Japan. 2016. FY 2014 Settlement White Paper on Local Public Finance.Google Scholar
- Oates, W.E. 1972. Fiscal federalism. New York: Harcourt Brace Jovanovich.Google Scholar
- Oh, Y. 2008. A study of fiscal decentralization and the soft budget constraint. Korean Journal of Public Administration 46(3): 121–143 (In Korean).Google Scholar
- Qian, Y., and G. Roland. 1998. Federalism and the soft budget constraint. American Economic Review 88: 1143–1162.Google Scholar
- Wildasin, D.E. 1997. Externalities and bailouts: Hard and soft budget constraints in intragovernmental fiscal relations. Mimeo, Vanderbilt University.Google Scholar