Size, spillovers and soft budget constraints
2013 (English)In: International Tax and Public Finance, ISSN 0927-5940, E-ISSN 1573-6970, Vol. 20, no 2, 338-356 p.Article in journal (Refereed) Published
There is much evidence against the so-called “too big to fail” hypothesis in the case of bailouts to subnational governments. We look at a model where districts of different size provide local public goods with positive spillovers. Matching grants of a central government can induce socially-efficient provision, but districts can still exploit the intervening central government by inducing direct financing. We show that the ability and willingness of a district to induce a bailout and district size are negatively correlated. Furthermore, we argue that these policies can be equilibrium strategies.
Place, publisher, year, edition, pages
Dordrecht: Springer Netherlands, 2013. Vol. 20, no 2, 338-356 p.
Bailouts; Soft budget constraints; District size; Spillovers
Research subject Economics
IdentifiersURN: urn:nbn:se:kau:diva-45627DOI: 10.1007/s10797-012-9230-3ISI: 000316205500008OAI: oai:DiVA.org:kau-45627DiVA: diva2:957375