IDEAS home Printed from https://ideas.repec.org/a/elt/journl/v86y2019i341p145-178.html
   My bibliography  Save this article

Rescates y restricción presupuestaria blanda en un contexto de descentralización fiscal incompleta

Author

Listed:
  • Morales Sánchez, Elmar

    (Universidad Autónoma Metropolitana)

Abstract

Background: In the area of intergovernmental fiscal relations, some studies attribute the problem of soft budget constraint to positive externalities that derive from jurisdictional provision of public goods. The present study explores how the problem of soft budget constraint can also arise when incomplete fiscal decentralization is combined with divergent fiscal policies of the central and local governments. Methodology: We construct a model in which each level of government is assigned a fiscal-behavior function that responds to three possibilities. Based upon that model, we formalize a dynamic, non-cooperative game of fiscal competition between the two levels of government. We then determine the combination of policies that constitute the model’s equilibrium. Results: We show that budget constraint softens when incomplete fiscal decentralization is combined with opposing fiscal policies at the local and central levels of government. In addition, the vicious circle of fiscal irresponsibility and bailouts of local governments is a Nash equilibrium. Conclusions: In economies with strong fiscal imbalances, and in which an efficient (i.e. complete) decentralization cannot be carried out, soft budget constraint becomes a significant moral-hazard problem that inevitably degrades a nation’s societal well-being. // Antecedentes: en el ámbito de las relaciones fiscales intergubernamentales algunos estudios atribuyen el problema de restricción presupuestaria blanda a las externalidades positivas que derivan de la provisión jurisdiccional de los bienes públicos. Suponiendo descentralización fiscal incompleta este trabajo explora cómo la divergencia entre la política fiscal del gobierno local y central también podría provocar el problema. Metodología: se construye un modelo en el que a cada nivel de gobierno se le asigna una función de comportamiento fiscal que responde a tres posibilidades. Sobre esta base, se formaliza un juego dinámico no cooperativo de competencia fiscal entre ambos niveles de gobierno y se determina la combinación de políticas que constituye el equilibrio del modelo. Resultados: se demuestra que la restricción presupuestaria se ablanda cuando la descentralización fiscal es incompleta y los objetivos de la política fiscal local se oponen a la central. Además, que el círculo vicioso de irresponsabilidad fiscal y rescate a los gobiernos locales es un equilibrio de Nash. Conclusiones: en economías con fuertes desequilibrios fiscales en las que no es posible emprender una descentralización fiscal eficiente (es decir, completa), el problema de restricción presupuestaria blanda se convierte en un problema de riesgo moral que, inevitablemente, deteriora el bienestar social nacional.

Suggested Citation

  • Morales Sánchez, Elmar, 2019. "Rescates y restricción presupuestaria blanda en un contexto de descentralización fiscal incompleta," El Trimestre Económico, Fondo de Cultura Económica, vol. 86(341), pages 145-178, enero-mar.
  • Handle: RePEc:elt:journl:v:86:y:2019:i:341:p:145-178
    DOI: http://dx.doi.org/10.20430/ete.v86i341.675
    as

    Download full text from publisher

    File URL: http://www.eltrimestreeconomico.com.mx/index.php/te/article/view/675
    Download Restriction: no

    File URL: https://libkey.io/http://dx.doi.org/10.20430/ete.v86i341.675?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    More about this item

    Keywords

    Descentralización fiscal incompleta; restricción presupuestaria blanda; rescate; equilibrio de Nash;
    All these keywords.

    JEL classification:

    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:elt:journl:v:86:y:2019:i:341:p:145-178. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Nuria Pliego Vinageras (email available below). General contact details of provider: http://www.fondodeculturaeconomica.com/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.