Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/260049 
Year of Publication: 
2013
Series/Report no.: 
Working Paper No. 2012:24
Publisher: 
Lund University, School of Economics and Management, Department of Economics, Lund
Abstract: 
Central government bailouts of local governments are commonly viewed as a recipe for local fiscal indiscipline, as local governments learn that the center will come to the rescue in times of trouble. However, little is known about the consequences of bailouts granted conditional on local governments first making efforts to improve the situation. We examine a case in which the Swedish central government provided conditional grants to 36 financially troubled municipalities. We use the synthetic control method to identify suitable comparison units for each of the 36 municipalities. To compare the development of costs and the fiscal surplus of admitted municipalities to that of their most similar counterparts during the decade after the program, we then estimate fixed effects regressions on the resulting sample. The analysis suggests that conditional bailouts did not erode, and may even had induced greater fiscal discipline.
Subjects: 
Bailouts
local governments
fiscal performance
synthetic control method
JEL: 
D23
H61
H62
H72
H77
Document Type: 
Working Paper

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