Rodden, Jonathan2012-08-132012-08-132000-07https://hdl.handle.net/10986/11426Since the early 1980s fiscal and political decentralization have spread around the world. But decentralization can encourage dangerous opportunistic behavior by state and local officials. Left unrestricted, such opportunism can undermine macroeconomic stability and other objectives. The most pressing manifestation of this problem is the softening of subnational budget constraints. The impact of decentralization on public sector efficiency and macroeconomic stability depends on a country's ability to prevent lower-level governments from passing on their liabilities to higher-level governments. This note draws on 11 countries to identify institutional factors associated with hard and soft budget constraints and extract policy lessons for other countries.CC BY 3.0 IGODECENTRALIZATION IN GOVERNMENTBUDGETSSUBNATIONAL GOVERNMENTFINANCIAL INSTITUTIONS ACCOUNTABILITYACCOUNTINGACCOUNTING PRINCIPLESASSETSAUDITINGAUTHORITYBANKRUPTCYBANKRUPTCY LAWSBANKRUPTCY PROCEDURESBORROWINGCAPITAL MARKETSCENTRAL BANKSCENTRAL GOVERNMENTCENTRAL GOVERNMENTSCITIZENSCOALITIONSCREDIT MARKETSCREDIT RATINGSDEBTDECENTRALIZATIONDEFICITSDEMOCRACYEMPLOYMENTFEDERALISMFINANCIAL CRISISFINANCIAL INSTITUTIONSFISCALFISCAL DECENTRALIZATIONFISCAL DISCIPLINEFISCAL FEDERALISMFISCAL PERFORMANCEFISCAL RESPONSIBILITYGOVERNMENT CONTROLSGOVERNMENT PERFORMANCEHARD BUDGET CONSTRAINTSINSTITUTIONAL MECHANISMSINTERGOVERNMENTAL TRANSFERSLEGISLATIONLEGISLATURELOCAL AUTONOMYLOCAL GOVERNMENTLOCAL GOVERNMENTSLOCAL REVENUELOCAL SPENDINGLOCAL TAXMACROECONOMIC STABILITYMARKET DISCIPLINEPOLITICAL INSTITUTIONSPOLITICIANSPRESIDENCYPRIVATIZATIONPUBLIC GOODSPUBLIC SECTORPUBLIC SECTOR EFFICIENCYSOFT BUDGET CONSTRAINTSSTATE ENTERPRISESSUBNATIONAL GOVERNMENTSUBNATIONAL GOVERNMENTSTAX ADMINISTRATIONTRANSITION ECONOMIESTRANSPARENCYWorld Bank10.1596/11426