Is it is or is it ain't my obligation? Regional debt in a fiscal federation

Russell W. Cooper, Hubert Kempf () and Dan Peled ()

No 507, Working Papers from Federal Reserve Bank of Dallas

Abstract: This paper studies the repayment of regional debt in a multiregion economy with a central authority: Who pays the obligation issued by a region? With commitment, a central government will use its taxation power to smooth distortionary taxes across regions. Absent commitment, the central government may be induced to bail out the regional government in order to smooth consumption and distortionary taxes across the regions. We characterize the conditions under which bailouts occur and their welfare implications. The gains to creating a federation are higher when the (government spending) shocks across regions are negatively correlated and volatile. We use these insights to comment on actual fiscal relations in three quite different federations: the U.S., the European Union and Argentina.

Keywords: Taxation (search for similar items in EconPapers)
Pages: 32 pages
Date: 2005
New Economics Papers: this item is included in nep-mac and nep-pbe
Note: Published as: Cooper, Russell, Hubert Kempf and Dan Peled (2008), "Is It Is or Is It Ain't My Obligation? Regional Debt in a Fiscal Federation," International Economic Review 49 (4): 1469-1504.
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Citations: View citations in EconPapers (11)

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Related works:
Journal Article: IS IT IS OR IS IT AIN'T MY OBLIGATION? REGIONAL DEBT IN A FISCAL FEDERATION (2008)
Working Paper: Is It Is or Is It Ain't My Obligation? Regional Debt in a Fiscal Federation (2005)
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