Soft budget constraint

Soft budget constraint is an economic term coined by Hungarian economist János Kornai, it refers to a phenomenon that often occurs within centrally-planned economies like those of the Soviet Union.

Often under heavy socialist systems, decision makers expect external financial assistance from the government in order to produce the adequate amount of goods and services. They can always expect to be bailed out when the demand for their products is low. This creates, as a consequence, a lack of incentive to increase productivity and innovation.

See also

• Consumer goods in the Soviet Union
• Shortage economy
• Eastern Bloc economies
• Planned economy
• Second economy of the Soviet Union

References

Gomulka, Stanislaw: Kornai's Soft Budget Constraint and the Shortage Phenomenon: A Criticism and Restatement, in: Economics of Planning, Vol. 19. 1985. No. 1.

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