Size and Soft Budget Constraints

Ernesto Crivelli () and Klaas Staal

No 18/2006, Bonn Econ Discussion Papers from University of Bonn, Bonn Graduate School of Economics (BGSE)

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
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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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bonedp:182006

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