A Theory of Fiscal Imbalance

Boadway, Robin; Tremblay, Jean‐François

doi:10.1628/001522106776667004

Cited by 45 publications

(43 citation statements)

References 20 publications

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“…The literature on fiscal federalism has studied the nature of budget constraints linking multilevel governments in federal contexts. We use a formulation that subsumes in a simple way various formulation in the literature that emphasize the way in which intergovernmental financing schemes affect the incentives of subnational governments (see, for example, Boadway and Tremblay, ; Careaga and Weingast, ; Cooper et al., ; Sanguinetti and Tommasi, ; and Treisman, ). In particular, the budget constraint of the subnational government now becomes:

t = (1 - m) (b + r)

where m is the fraction of provincial spending that is financed (“bailed out”) by the national common pool of taxes.…”

Section: The Modelmentioning

confidence: 99%

Voters as Fiscal Liberals: Incentives and Accountability in Federal Systems

Jones

Meloni

Tommasi

2012

Economics & Politics

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Most empirical evidence indicates voters penalize deficits and spending growth. Contrary to this dominant finding, a few recent studies conclude that voters reward public spending. We reconcile these conflicting findings, positing that the structure of fiscal federalism in countries like Argentina causes voters to reward fiscal expansion because they perceive that this extra spending at the margin is not financed by them, but rather by the nation at large. We provide evidence and microfoundations for the electoral connection implicit in this argument: voters reward public spending when they can pass the cost on to someone else (e.g., as in Argentina), and punish it otherwise (e.g., as in the United States).

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t = (1 - m) (b + r)

where m is the fraction of provincial spending that is financed (“bailed out”) by the national common pool of taxes.…”

Section: The Modelmentioning

confidence: 99%

Voters as Fiscal Liberals: Incentives and Accountability in Federal Systems

Jones

Meloni

Tommasi

2012

Economics & Politics

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“…While this literature justifies a moderate optimism about the desirability (see also Auerbach, 2009) and effectiveness of constraints, some of the studies stress the role of creative accounting in circumventing the rules (von Hagen and Wolff, 2006). Besides these analyses for numerical fiscal rules, the roles of federal vertical transfers (Boadway and Tremblay, 2006) and budgetary processes have been thoroughly analyzed (von Hagen and Harden 1995;Hallerberg and von Hagen, 1999). A conclusion of this procedural analysis is that either delegation approaches with the establishment of a strong finance minister or contract approaches with an ex ante commitment to budgetary objectives can provide an effective counterweight against the deficit bias that originates from the underlying common pool problems in representative democracies.…”

Section: Copyright Mohr Siebeckmentioning

confidence: 99%

Understanding Public Debt Preferences

Heinemann¹,

Hennighausen²

2012

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Surprisingly little is known about voters' public debt preferences on a micro level. This is deplorable, given the importance of the fiscal stability culture in the context of the European public debt crisis. This contribution tests, for a self-designed representative German survey, debt preferences and their determinants. Our results indicate that a Ricardian approach has some importance for explaining individual heterogeneity of consolidation preferences ---emphasizing, for example, the importance of individual credit constraints. However, Ricardian reasoning is not able to give a complete picture. Theories of debt determination that point to societal coordination failures or ideology offer additional explanations with empirical backing. The magnitude of these additional effects is substantial; the size of the trust variable is not smaller than the intergenerational dummy for the presence of children.

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“…5 Additionally, as the focus of the article is on the soft-budget-constraint problem in the European Union, no political benefits of a bailout are considered. Within the EU, bailouts are decided upon at meetings of all Member States, and there is no central government 4 Further contributions to the literature include Koethenbuerger (2004Koethenbuerger ( , 2007; Akai and Sato (2006); Breuille et al (2006); Boadway and Tremblay (2006); Ihori (2011). Breuille et al (2006) show that horizontal and vertical tax competition may harden regional budget constraints.…”

Section: Introductionmentioning

confidence: 99%

Prudent Fiscal Policy in the Presence of Bailout Expectations

Kalamov¹

2012

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This paper analyzes the introduction of an automatic correction mechanism (ACM) in an economic union whose member states expect to be bailed out in the case of a debt crisis. An ACM can be used to penalize governments that run deficits. We show that if the mechanism is appropriately structured, it can harden the governmental budget constraints. Thus, in the presence of an ACM, bailout expectations of a regional government do not lead to excessive borrowing. However, we find that simultaneous introduction of an ACM and a credible commitment not to bail out indebted regions may lead to inefficiently hard budget constraints and an overshoot of the policy objectives.

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A Theory of Fiscal Imbalance

Cited by 45 publications

References 20 publications

Voters as Fiscal Liberals: Incentives and Accountability in Federal Systems

Voters as Fiscal Liberals: Incentives and Accountability in Federal Systems

Understanding Public Debt Preferences

Prudent Fiscal Policy in the Presence of Bailout Expectations

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