Subnational Government Bailouts in OECD Countries: Four Case Studies

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Subnational Government Bailouts in OECD Countries: Four Case Studies

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Jürgen Von Hagen
Massimo Bordignon
Bhajan S. Grewal
Per Peterson
Helmut Seitz
Matz Dahlberg

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Abstract

We present four case studies of bailouts of subnational governments in Australia, Germany, Italy and Sweden. The case studies show that bailouts can occur in a diverse set of institutions shaping the relations between central and subnational governments. Surpisingly, there is little evidence in favor of the `too big to fail` argument explaining bailouts. In contrast, elements of political favoritism play some role in most cases. The cases also indicate the importance of properly designing principal-agent relationships in the decentralization of public finances. Constitutional mandates for uniform provision of public services and attempts by the central government to dominate subnational governments in matters of fiscal policy seem to be conducive to bailouts.

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Paper provided by Inter-American Development Bank, Research Department in its series RES Working Papers with number 3100.

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Date of creation: Nov 2000
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Handle: RePEc:idb:wpaper:3100

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References listed on IDEAS
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Persson, Torsten & Tabellini, Guido, 1994. "Does centralization increase the size of government?," European Economic Review, Elsevier, vol. 38(3-4), pages 765-773, April. [Downloadable!] (restricted)
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:
- Yingyi Qian & Gerard Roland, . "Federalism and the Soft Budget Constraint," Working Papers 97045, Stanford University, Department of Economics. [Downloadable!]
Wildasin, David E., 1998. "Fiscal aspect of evolving federations : issues for policy and research," Policy Research Working Paper Series 1884, The World Bank. [Downloadable!]
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!]
Eichengreen, Barry & von Hagen, Jürgen, 1995. "Fiscal Policy and Monetary Union: Federalism, Fiscal Restrictions and the No-Bailout Rule," CEPR Discussion Papers 1247, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
Other versions:
- Barry Eichengreen and Jurgen von Hagen., 1995. "Fiscal Policy and Monetary Union: Federalism, Fiscal Restrictions and the No-Bailout Rule," Center for International and Development Economics Research (CIDER) Working Papers C95-056, University of California at Berkeley.

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(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.)

Ernesto Crivelli & Klaas Staal, 2006. "Size and Soft Budget Constraints," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
Other versions:
- Ernesto Crivelli & Klaas Staal, 2006. "Size and Soft Budget Constraints," Working Papers 2006-13, University of Kentucky, Institute for Federalism and Intergovernmental Relations. [Downloadable!]
- Ernesto Crivelli & Klaas Staal, 2006. "Size and soft budget constraints," Discussion Papers 172, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
Ernesto Crivelli & Klaas Staal, 2008. "Size, Spillovers and Soft Budget Constraints," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2008_17, Max Planck Institute for Research on Collective Goods. [Downloadable!]

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