The government's incentives to bail out inefficient projects are determined by the trade-off between political benefits and economic costs, the latter depending on the decentralization of government. Two effects of federalism are derived: First, fiscal competition among local governments under...

We analyze the problem of soft budget constraints of enterprises financed by banks in transition economies and review the similarities and the differences in various models addressing that issue. We reconstruct these models as several variants of a basic sequential model of soft budget...