Externalities and Bailouts: Hard and Soft Budget Constraints in Intergovernmental Fiscal Relations

David Wildasin ()

Public Economics from EconWPA

Abstract: Central government matching grants can, in principle, induce socially- efficient provision of local public goods that produce spillover benefits. Local underprovision of public goods may however elicit direct central-government provision and finance (a ``bailout") that makes local residents better off than under grant-subsidized local provision; local underprovision that induces bailouts reveals the local budget constraint to be ``soft." Simulations suggest that the ability of a locality to extract a welfare-improving bailout depends positively on its size: budget constraints are more likely to be ``hard" for small localities.

Keywords: fiscal; federalism; intergovernmental; transfers (search for similar items in EconPapers)
JEL-codes: D6 D7 H (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-pbe
Date: 2001-12-10
Note: Type of Document - ; prepared on TeX; figures: request from author
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http://129.3.20.41/eps/pe/papers/0112/0112002.pdf (application/pdf)

Related works:
Working Paper: Externalities and bailouts: hard and soft budget constraints in intergovernmental fiscal relations (1997)
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwppe:0112002

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