Subnational Government Bailouts in OECD Countries: Four Case Studies
AbstractWe 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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Bibliographic InfoPaper provided by Inter-American Development Bank, Research Department in its series Research Department Publications with number 3100.
Date of creation: Nov 2000
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