Size, spillovers and soft budget constraints

Abstract

There is much evidence against the so-called "too big to fail" hypothesis in the case of bailouts to subnational governments. We look at a model where districts of di¤erent size provide local public goods with positive spillovers. Matching grants of a central government can induce socially-e¢ cient provision, but districts can still exploit the intervening central government by inducing direct …nancing. We show that the ability and willingness of a district to induce a bailout and district size are negatively correlated. We also discuss the e¤ect economies of scale in local public goods provision has on the bailout policies and argue that these policies can be subgame perfect equilibrium strategies.

The Sovereign Default Problem in the Eurozone: An Insurance-Based Approach

“…Accordingly, the same criticism applies. As Sinn (2012) 9 argues, it is to be expected that as soon as the roll-in-phase is over, the contingent component of the debt repayment fund will be extended due to political pressure.…”

“…Beetsma & Bovenberg, 1999;Beetsma & Uhlig, 1999;Kehoe, 2007 andCooper & Kempf, 2004;Cooper et al, 2010;Uhlig, 2003) and …scal federalism (e.g. Cooper et al, 2008;Crivelli & Staal, 2013;Goodspeed, 2002;Wildasin, 1997). Our insurance approach is motivated by the excessive incentives to accumulate debt arising from the commitment problem to no bailouts in a monetary union.…”

“…Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung (2011), Chapter 3.VI 9. Sinn, H.-W. (2012), pp.…”

Health care expenditure decisions in the presence of devolution and equalisation grants

“…There are two goods available to this community: a composite private commodity whose consumption is measured by net available income, and health care. We assume that health care is a paternalistic good with spillovers (Schnellenbach 2012;Levaggi 2010;Besley and Coate 2003;Crivelli and Staal 2008;Wildasin 2001) which is supplied free of charge by a public health care system, but only if the treatment is cost effective. This means utility from health care has two components:…”

The French Regions’ Borrowing Behaviours: How Heterogeneous are They?

“…Local governments implement policies that bind the central government. This result is however challenged by Crivelli and Staal (2006) who use a model centred on economies of scale in the local public goods provision.…”