Size and Soft Budget Constraints
AbstractThere 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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Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1858.
Date of creation: 2006
Date of revision:
bailouts; soft-budget constraints; jurisdictional size; public goods; spillovers;
Other versions of this item:
- Crivelli, Ernesto & Staal, Klaas, 2006. "Size and soft budget constraints," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 172, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
- Ernesto Crivelli & Klaas Staal, 2006. "Size and Soft Budget Constraints," Working Papers 2006-13, University of Kentucky, Institute for Federalism and Intergovernmental Relations.
- H4 - Public Economics - - Publicly Provided Goods
- H7 - Public Economics - - State and Local Government; Intergovernmental Relations
- R1 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-01-02 (All new papers)
- NEP-GEO-2007-01-02 (Economic Geography)
- NEP-PBE-2007-01-02 (Public Economics)
- NEP-PUB-2007-01-02 (Public Finance)
- NEP-URE-2007-01-02 (Urban & Real Estate Economics)
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