Size and Soft Budget Constraints

Ernesto Crivelli () and Klaas Staal
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Klaas Staal: University of Bonn, IIW, Lennestr. 37, Bonn, Germany, 53113

No 2006-13, Working Papers from University of Kentucky, Institute for Federalism and Intergovernmental Relations

Abstract: There is much evidence against the so-called "too big to fail" hypothesis in the case of bailouts to sub-national 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 of a district to induce a bailout from the central government and district size are negatively correlated.

Keywords: bailouts; soft-budget constraints; jurisdictional size; public goods; spillovers (search for similar items in EconPapers)
JEL-codes: H4 H7 R1 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2006-11
New Economics Papers: this item is included in nep-pbe and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Related works:
Working Paper: Size and Soft Budget Constraints (2006)
Working Paper: Size and soft budget constraints (2006)
Working Paper: Size and Soft Budget Constraints (2006)
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