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Bailouts and austerity

Listed author(s):
  • Baskaran, Thushyanthan

This paper studies with disaggregated budget data how expenditures, revenues, and borrowing evolve in municipalities that receive bailouts. It asks whether higher-level governments enforce austerity measures after bailing out indebted municipalities. The sample consists of 421 municipalities in the German federal state of Hesse over the 1997-2010 period. The results indicate that municipalities cut personnel, construction, and social expenditures, increase tax revenues and property tax rates, and reduce deficits after they receive a bailout from the state government. The state government appears to be both able and willing to enforce austerity after granting a bailout.

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File URL: https://www.econstor.eu/bitstream/10419/98842/1/790809567.pdf
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Paper provided by University of Goettingen, Department of Economics in its series Center for European, Governance and Economic Development Research Discussion Papers with number 212.

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Date of creation: 2014
Handle: RePEc:zbw:cegedp:212
Contact details of provider: Postal:
Platz der Göttinger Sieben 3, 37073 Göttingen

Web page: http://www.cege.wiso.uni-goettingen.de/

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  1. Dietrichson, Jens & Ellegård, Lina Maria, 2015. "Assist or desist? Conditional bailouts and fiscal discipline in local governments," European Journal of Political Economy, Elsevier, vol. 38(C), pages 153-168.
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  12. Baskaran, Thushyanthan, 2012. "Soft budget constraints and strategic interactions in subnational borrowing: Evidence from the German States, 1975–2005," Journal of Urban Economics, Elsevier, vol. 71(1), pages 114-127.
  13. Robert Inman, 2001. "Transfers and Bailouts: Institutions for Enforcing Local Fiscal Discipline," Constitutional Political Economy, Springer, vol. 12(2), pages 141-160, June.
  14. János Kornai, 2014. "The soft budget constraint," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 64(supplemen), pages 25-79, November.
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  16. Akai, Nobuo & Sato, Motohiro, 2008. "Too big or too small? A synthetic view of the commitment problem of interregional transfers," Journal of Urban Economics, Elsevier, vol. 64(3), pages 551-559, November.
  17. Thushyanthan Baskaran, 2013. "Do bailouts buy votes? Evidence from a panel of Hessian municipalities," Economics of Governance, Springer, vol. 14(3), pages 257-278, August.
  18. Timothy Goodspeed & Andrew Haughwout, 2012. "On the optimal design of disaster insurance in a federation," Economics of Governance, Springer, vol. 13(1), pages 1-27, March.
  19. Takero Doi & Toshihiro Ihori, 2006. "Soft-Budget Constraints and Local Expenditures," CIRJE F-Series CIRJE-F-422, CIRJE, Faculty of Economics, University of Tokyo.
  20. Stefano DellaVigna & Eliana La Ferrara, 2010. "Detecting Illegal Arms Trade," American Economic Journal: Economic Policy, American Economic Association, vol. 2(4), pages 26-57, November.
  21. Fernanda Brollo & Tommaso Nannicini, 2010. "Tying Your Enemy’s Hands in Close Races: The Politics of Federal Transfers in Brazil," Working Papers 358, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  22. Levitt, Steven D & Snyder, James M, Jr, 1997. "The Impact of Federal Spending on House Election Outcomes," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 30-53, February.
  23. Stephan Litschig & Kevin M. Morrison, 2013. "The Impact of Intergovernmental Transfers on Education Outcomes and Poverty Reduction," American Economic Journal: Applied Economics, American Economic Association, vol. 5(4), pages 206-240, October.
  24. Per Pettersson-Lidbom, 2010. "Dynamic Commitment and the Soft Budget Constraint: An Empirical Test," American Economic Journal: Economic Policy, American Economic Association, vol. 2(3), pages 154-179, August.
  25. Bordignon, Massimo & Turati, Gilberto, 2009. "Bailing out expectations and public health expenditure," Journal of Health Economics, Elsevier, vol. 28(2), pages 305-321, March.
  26. Brian Knight, 2002. "Endogenous Federal Grants and Crowd-out of State Government Spending: Theory and Evidence from the Federal Highway Aid Program," American Economic Review, American Economic Association, vol. 92(1), pages 71-92, March.
  27. Baskaran, Thushyanthan, 2012. "The flypaper effect: evidence from a natural experiment in Hesse," MPRA Paper 37144, University Library of Munich, Germany.
  28. Breuillé, Marie-Laure & Vigneault, Marianne, 2010. "Overlapping soft budget constraints," Journal of Urban Economics, Elsevier, vol. 67(3), pages 259-269, May.
  29. Ernesto Crivelli & Klaas Staal, 2013. "Size, spillovers and soft budget constraints," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 20(2), pages 338-356, April.
  30. Martin Besfamille & Ben Lockwood, 2008. "Bailouts In Federations: Is A Hard Budget Constraint Always Best?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(2), pages 577-593, May.
  31. Sorribas-Navarro, Pilar, 2011. "Bailouts in a fiscal federal system: Evidence from Spain," European Journal of Political Economy, Elsevier, vol. 27(1), pages 154-170, March.
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