Hard Budget Constraint

Hard Budget Constraint

A spending limit that cannot be exceeded without drastic consequences. For example, a country cannot exceed its debt ceiling without incurring panic in its bond markets. More commonly, however, this term refers to the requirement that a money manager or investment company at least break even and preferably meet some target profit for clients or shareholders. Companies that fail to meet hard budget constraints may see shake-ups in their management, perhaps with major executives losing their jobs.
References in periodicals archive ?
1) Du and Li (2007) argue that it is harder and less credible for countries with a larger fiscal capacity to commit to a hard budget constraint on banks because the ability of these countries to bail out failing banks is restricted by their fiscal capacity.
This would make business rates a fully devolved tax and it would introduce a hard budget constraint into Welsh Government policymaking that is currently lacking.
The firm faces a hard budget constraint as long as it does not receive support from other organisations to cover its deficit.
The day it will happen a hard budget constraint will be enforced on the U.
But the IMF clarified that even Russia faced a hard budget constraint in international finance.
Effective arm's length relationships and controls would need to be established to enforce a hard budget constraint and to avoid the Treuhandanstalt injecting fresh capital rather than selling off its holdings over time.
The focus on social inclusion, subject to a hard budget constraint, arose as a reaction to the country's historic inequality, the trauma of the 1964-85 authoritarian period, and 10 years of hyperinflation (1985-94).
k] is constant at the level under a hard budget constraint.
State-owned enterprises have not faced hard budget constraints and China's industrial policy has become more and more problematic for foreign firms.
He said most economies have two mechanisms that force GDP data to conform to underlying economic performance - (1) Hard budget constraints which set spending limits, drive companies that systematically waste investment out of business before they can substantially distort the economy, and (2) A market-pricing factor in GDP accounting that when bad debts caused by wasted investment are written down, the value-added component of GDP and the overall level of reported growth is reduced.
Putin has allowed the "systemic liberals" in his administration to impose hard budget constraints even on the large state companies.
That would put an end to some pipe dreams, but it would also mean taking a step toward strengthening accountability and put the eurozone back on the path to hard budget constraints, without which no economic system can survive.