Causes and Consequences of Bailing out Expectations of Subcentral Governments: Theory and Evidence from the Italian Regions
Fabio Padovano ()
Economics Working Paper Archive (University of Rennes 1 & University of Caen) from Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS
This paper examines the strategic interactions among the central and a subcentral government where incomplete information forces both to form expectations about the other’s behaviour, especially the probability that the central government will bail out the local one. Various determinants and outcomes of the strategic interaction are explored. The model generates empirical restrictions about the central government’s transfer decisions and the lower government’s spending behaviour. These restrictions are tested on a sample of 20 Italian Regions. Data show that bailing out expectations are a quantitatively important component of local government spending.
Keywords: Expectations; intergovernmental relations; transfers; local public spending; bailing out; positive analysis (search for similar items in EconPapers)
JEL-codes: H71 H73 H77 D78 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-geo and nep-ure
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