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...

This paper attributes shortages of goods in socialist economies to the soft financial constraints that firms in such economies face. A 'soft budget constraint' problem arises when the state bank is unable to make a credible commitment not to refinance bad projects once some investment costs are...

We present empirical evidence that, among a variety of cultural dimensions, the individualism-collectivism dimension, based on Hofstede's (2001) data, is the most important and robustly significant effect of culture on long run growth. Other dimensions that have a significant effect, albeit less...

The authors present a model of large-scale economic reforms, modeled on the transition process in Eastern Europe, with aggregate and individual uncertainty concerning the outcome of reforms. The government is assumed to choose the speed and sequencing of reforms. The authors compare big-bang...