Size, spillovers and soft budget constraints

Ernesto Crivelli () and Klaas Staal ()

International Tax and Public Finance, 2013, vol. 20, issue 2, 338-356

Abstract: There is much evidence against the so-called “too big to fail” hypothesis in the case of bailouts to subnational 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 and willingness of a district to induce a bailout and district size are negatively correlated. Furthermore, we argue that these policies can be equilibrium strategies. Copyright Springer Science+Business Media, LLC 2013

Keywords: Bailouts; Soft budget constraints; District size; Spillovers; H4; H7; R1 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (22)

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Working Paper: Size, Spillovers and Soft Budget Constraints (2008)
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DOI: 10.1007/s10797-012-9230-3

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