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Size and Soft Budget Constraints

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Author Info
Ernesto Crivelli ()
Klaas Staal ()

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Abstract

There is much evidence against the so-called "too big to fail" hypothesis in the case of bailouts to sub-national 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 of a district to induce a bailout from the central government and district size are negatively correlated.

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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 1858.

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Date of creation: 2006
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Handle: RePEc:ces:ceswps:_1858

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Related research
Keywords: bailouts; soft-budget constraints; jurisdictional size; public goods; spillovers;

Other versions of this item:

Find related papers by JEL classification:
H40 - Public Economics - - Publicly Provided Goods - - - General
H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
R10 - Urban, Rural, and Regional Economics - - General Regional Economics - - - General

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Kornai, Janos, 1986. "The Soft Budget Constraint," Kyklos, Blackwell Publishing, vol. 39(1), pages 3-30.
  2. Inman, Robert P, 1995. "How to Have a Fiscal Crisis: Lessons from Philadelphia," American Economic Review, American Economic Association, vol. 85(2), pages 378-83, May. [Downloadable!] (restricted)
  3. Sanguinetti, Pablo & Tommasi, Mariano, 2004. "Intergovernmental transfers and fiscal behavior insurance versus aggregate discipline," Journal of International Economics, Elsevier, vol. 62(1), pages 149-170, January. [Downloadable!] (restricted)
  4. Qian, Yingyi & Roland, Gerard, 1998. "Federalism and the Soft Budget Constraint," American Economic Review, American Economic Association, vol. 88(5), pages 1143-62, December. [Downloadable!] (restricted)
    Other versions:
  5. Wildasin, David E., 1997. "Externalities and bailouts : hard and soft budget constraints in intergovernmental fiscal relations," Policy Research Working Paper Series 1843, The World Bank. [Downloadable!]
    Other versions:
  6. Juan Pablo Nicolini & Josefina Posadas & Juan Sanguinetti & Pablo Sanguinetti & Mariano Tommasi, 2002. "Decentralization, Fiscal Discipline in Sub-National Governments and the Bailout Problem: The Case of Argentina," RES Working Papers 3160, Inter-American Development Bank, Research Department. [Downloadable!]
  7. Pettersson-Lidbom, Per & Dahlberg, Matz, 2003. "An Empirical Approach for Evaluating Soft Budget Constraints," Working Paper Series 2003:28, Uppsala University, Department of Economics. [Downloadable!]
  8. Alesina, Alberto & Spolaore, Enrico, 1997. "On the Number and Size of Nations," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1027-56, November.
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  9. Massimo Bordignon, 2000. "Problems of Soft Budget Constraints in Intergovernmental Relationships: The Case of Italy," RES Working Papers 3099, Inter-American Development Bank, Research Department. [Downloadable!]
  10. Eric S. Maskin, 1999. "Recent Theoretical Work on the Soft Budget Constraint," American Economic Review, American Economic Association, vol. 89(2), pages 421-425, May. [Downloadable!] (restricted)
  11. Jürgen Von Hagen & Massimo Bordignon & Bhajan S. Grewal & Per Peterson & Helmut Seitz & Matz Dahlberg, 2000. "Subnational Government Bailouts in OECD Countries: Four Case Studies," RES Working Papers 3100, Inter-American Development Bank, Research Department. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Christos Kotsogiannis & Robert Schwager, 2006. "Fiscal Equalization and Yardstick Competition," Working Papers 2006-15, University of Kentucky, Institute for Federalism and Intergovernmental Relations. [Downloadable!]
    Other versions:
  2. Rosella Levaggi, 2009. "From local to global public goods: how should externalities be represented?," Working Papers 0903, University of Brescia, Department of Economics. [Downloadable!]
  3. David Wildasin, 2007. "Pre-Emption: Federal Statutory Intervention in State Taxation," Working Papers 2007-05, University of Kentucky, Institute for Federalism and Intergovernmental Relations. [Downloadable!]
  4. Hikaru Ogawa & David Wildasin, 2007. "Think Locally, Act Locally: Spillovers, Spillbacks, and Efficient Decentralized Policymaking," Working Papers 2007-06, University of Kentucky, Institute for Federalism and Intergovernmental Relations. [Downloadable!]
    Other versions:
  5. Marie-Laure Breuillé & Thierry Madiès & Emmanuelle Taugourdeau, 2007. "Funding source and soft budget constraint," EconomiX Working Papers 2007-12, University of Paris West - Nanterre la Défense, EconomiX. [Downloadable!]
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