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Government debt spillovers and creditworthiness in a federation

Stuart Landon () and Constance Smith ()

Canadian Journal of Economics, 2000, vol. 33, issue 3, 634-661

Abstract: Estimates are presented for the impact of debt accumulation by the central and subcentral governments of a federation on the creditworthiness of other federation member governments. The estimates, calculated using an ordered probit model and Canadian provincial data, indicate that debt accumulation by the central government has reduced the creditworthiness of indebted provincial governments. Interprovincial debt accumulation effects are negative but relatively small, except for the debt of the largest province, which has a strong positive effect on the creditworthiness of the other provinces. These findings may have implications for other federations and associated jurisdictions, such as the European Union.

JEL-codes: H63 F36 (search for similar items in EconPapers)
Date: 2000
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Handle: RePEc:cje:issued:v:33:y:2000:i:3:p:634-661