Federalism and the Soft Budget Constraint
分析联邦主义如何通过财政竞争和货币集权两种机制硬化预算约束、降低通胀，并用中国转型经验加以解释。
October 1997, (Forthcoming, American Economic Review) The government's incentives to bail out inefficient projects are determined by the tradeoff 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 factor mobility increases the opportunity costs of bailout and thus serves as a commitment device (the "competition effect"). Second, monetary centralization, together with fiscal decentralization, induces a conflict of interests and thus may harden budget constraints and reduce inflation (the "checks and balance effect"). Our analysis is used to interpret China's recent experience of transition to a market economy. Key Words: Soft Budget Constraints, Federalism, Decentralization, Competition, China