Is It Is or Is It Ain't My Obligation? Regional Debt in a Fiscal Federation

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

No 11655, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper studies the repayment of regional debt in a multi-region 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 bailout 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 US, the European Union and Argentina.

JEL-codes: E6 F4 R5 (search for similar items in EconPapers)
Date: 2005-10
New Economics Papers: this item is included in nep-dge, nep-geo, nep-mac, nep-pbe and nep-ure
Note: EFG PE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

Published as Russell Cooper & Hubert Kempf & Dan Peled, 2008. "Is It Is Or Is It Ain'T My Obligation? Regional Debt In A Fiscal Federation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(4), pages 1469-1504, November.

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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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