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Overlapping soft budget constraints

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  • Breuillé, Marie-Laure
  • Vigneault, Marianne

Abstract

Our paper identifies a potential problem with decentralization at a time when its virtues are widely extolled. We show that responsibility for equalization at multi-levels within a decentralized federation creates an overlapping equalization policy that can worsen fiscal discipline. Contrary to Qian and Roland (1998), we also show in our set-up that fiscal competition among regional rescuers does not act as a commitment device to harden the local budget constraint.

Suggested Citation

  • Breuillé, Marie-Laure & Vigneault, Marianne, 2010. "Overlapping soft budget constraints," Journal of Urban Economics, Elsevier, vol. 67(3), pages 259-269, May.
    • Handle: RePEc:eee:juecon:v:67:y:2010:i:3:p:259-269
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    References listed on IDEAS

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