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Title:Size, spillovers and soft budget constraints PDF Logo
Authors:Crivelli, Ernesto
Staal, Klaas
Issue Date:2008
Series/Report no.:Preprints of the Max Planck Institute for Research on Collective Goods 2008,17
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 so-cially-efficient provision, but districts can still exploit the intervening central government by induc-ing direct financing. We show that the ability and willingness of a district to induce a bailout and district size are negatively correlated. We also discuss the effect economies of scale in local public goods provision has on the bailout policies and argue that these policies can be subgame perfect equilibrium strategies.
Subjects:bailouts
soft-budget constraints
district size
spillovers
JEL:H4
H7
R1
Document Type:Working Paper
Appears in Collections:Preprints of the Max Planck Institute for Research on Collective Goods

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