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

  • Nobuo Akai

    ()

    (Osaka University)

  • Motohiro Sato

    ()

    (Hitotsubashi University)

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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File URL: http://ieb.ub.edu/aplicacio/fitxers/2009/10/Doc2009-20.pdf
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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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  1. Velasco, Andres, 2000. "Debts and deficits with fragmented fiscal policymaking," Journal of Public Economics, Elsevier, vol. 76(1), pages 105-125, April.
  2. Caplan, Arthur J. & Cornes, Richard C. & Silva, Emilson C. D., 2000. "Pure public goods and income redistribution in a federation with decentralized leadership and imperfect labor mobility," Journal of Public Economics, Elsevier, vol. 77(2), pages 265-284, August.
  3. Timothy Goodspeed, 2002. "Bailouts in a Federation," International Tax and Public Finance, Springer, vol. 9(4), pages 409-421, August.
  4. Jonathan A. Rodden & Gunnar S. Eskeland (ed.), 2003. "Fiscal Decentralization and the Challenge of Hard Budget Constraints," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262182297, June.
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