Size and soft budget constraints

Ernesto Crivelli (ecrivelli@imf.org) and Klaas Staal

Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems from Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich

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 different size provide local public goods with positive spillovers. Matching grants of a central government can induce socially-efficient provision, but districts can still exploit the intervening central government by inducing direct financing. 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)
Date: 2006-10
New Economics Papers: this item is included in nep-pbe
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Citations: View citations in EconPapers (8)

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https://epub.ub.uni-muenchen.de/13379/1/172.pdf (application/pdf)

Related works:
Working Paper: Size and Soft Budget Constraints (2006)
Working Paper: Size and Soft Budget Constraints (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:trf:wpaper:172

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