Debt Bailouts and Constitutions

Emanuel Kohlscheen

No 269860, Economic Research Papers from University of Warwick - Department of Economics

Abstract: A demand based theory of sub-national debt bailouts is presented. It is shown that revenue sharing (RS) arrangements alter the demand for bailouts among politicians with regional constituencies as a bailout usually implies a shift of taxation to the federal tier. Automatic RS may lead to the formation of pro-bailout coalitions formed by indebted states and states that are net recipients of the RS arrangement. Also, RS can act as a commitment device for compensating payments among state representatives, making a bailout politically rational. The model shows that the state debt bailouts approved by the Brazilian Senate prior to the enactment of the Fiscal Responsibility Act were fully consistent with politicians that maximize the proceeds accruing to their constituencies.

Keywords: Financial Economics; Political Economy (search for similar items in EconPapers)
Pages: 35
Date: 2006
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Related works:
Journal Article: DEBT BAILOUTS AND CONSTITUTIONS (2008)
Working Paper: Debt Bailouts and Constitutions (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:uwarer:269860

DOI: 10.22004/ag.econ.269860

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