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Soft budgets and local borrowing regulation in a dynamic decentralized leadership model with saving and free mobility

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Author Info
Nobuo Akai () (Osaka University)
Motohiro Sato () (Hitotsubashi University)
Abstract

This paper considers a simple dynamic decentralized leadership model with local borrowing and regional productivity enhancing investment. The central government is benevolent but cannot commit. The local governments strategically act while accounting for the ex post motive of the central government. We then investigate inefficiency in the subgame perfect equilibrium. We analyze the effect of central control on local borrowings. It is revealed that the central control is of no use. The model is extended to the case with residential mobility which gives different policy implications.

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Publisher Info
Paper provided by Institut d'Economia de Barcelona (IEB) in its series Working Papers with number 2009/20.

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Length: 39 pages
Date of creation: 2009
Date of revision:
Handle: RePEc:ieb:wpaper:2009/10/doc2009-20

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Related research
Keywords: soft budget; local borrowing; local investment;

Find related papers by JEL classification:
H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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This page was last updated on 2009-11-25.

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