Mature federations have relatively transparent delineations of authority among levels of government; subnational governments enjoy considerable autonomy in their expenditure, revenue, and debt policies. In other countries, problems of soft budget constraints, bailouts, and fiscal and financial instability demonstrate the difficulties of institutional design in a federation. This paper outlines an analytical framework within which interjurisdictional spillovers may create incentives for higher-level governments to intervene in the control and financing of lower-level governments (bailouts). This framework helps to identify directions for theoretical and empirical research that can illuminate important features of observed institutions and guide policy analysis.
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Paper provided by EconWPA in its series Public Economics with number
0403006.
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.)
Robin Boadway & Jean-Francois Tremblay, 2005.
"A Theory of Vertical Fiscal Imbalance,"
Working Papers
2006-04, University of Kentucky, Institute for Federalism and Intergovernmental Relations.
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