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Overlapping Local Government Debt and the Fiscal Common

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  • Robert A. Greer

Abstract

In a complex federalist system, the interactions across levels of government have important fiscal implications. Municipal debt has become increasingly important as local governments turn to tax-backed bonds as a significant source of funds. In a system of local governments that have overlapping borders, fiscal interactions become a factor in issuing debt. In this system, debt acts as a fiscal common resource similar to traditional common-pool resources. Specifically, vertical externalities are created with multiple levels of governments issuing bonds backed by the same tax base. Empirical results show that on average an increase in the total amount of debt issued by subcounty governments increases the true interest cost paid by county governments on tax-backed debt. Furthermore, increasing the number of overlapping governments also increases the interest costs for county debt. These findings show support for analyzing debt capacity as a fiscal common resource and have implications for debt management strategies.

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  • Robert A. Greer, 2015. "Overlapping Local Government Debt and the Fiscal Common," Public Finance Review, , vol. 43(6), pages 762-785, November.
    • Handle: RePEc:sae:pubfin:v:43:y:2015:i:6:p:762-785
    DOI: 10.1177/1091142114545678
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    Cited by:

    1. Sanghee Park, 2018. "Understanding Public Sector Debt: Financial Vicious Circle under the Soft Budget Constraint," Public Organization Review, Springer, vol. 18(1), pages 71-92, March.

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