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Fiscal sustainability across government tiers: an assessment of soft budget constraints

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Author Info
Peter Claeys () (Faculty of Economics, University of Barcelona.)
Raúl Ramos () (Faculty of Economics, University of Barcelona.)
Jordi Suriñach () (Faculty of Economics, University of Barcelona.)

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Abstract

This paper analyses how fiscal adjustment comes about when both central and sub-national governments are involved in consolidation. We test sustainability of public debt with a fiscal rule for both the federal and regional government. Results for the German Länder show that lower tier governments bear a relatively smaller part of the burden of adjustment, if they consolidate at all. Most of the fiscal adjustment occurs via central government debt. In contrast, both the US federal and state levels contribute to consolidation of public finances.

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Publisher Info
Paper provided by University of Barcelona, Research Institute of Applied Economics in its series IREA Working Papers with number 200714.

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Length: 33 pages
Date of creation: Jul 2007
Date of revision: Jul 2007
Handle: RePEc:ira:wpaper:200714

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Postal: Tinent Coronel Valenzuela, Num 1-11 08034 Barcelona
Web page: http://www.ub.edu/irea/
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Related research
Keywords: fiscal policy; fiscal rules; EMU; SGP; fiscal federalism;

Find related papers by JEL classification:
E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Bohn, Henning, 2007. "Are stationarity and cointegration restrictions really necessary for the intertemporal budget constraint?," Journal of Monetary Economics, Elsevier, vol. 54(7), pages 1837-1847, October. [Downloadable!] (restricted)
  2. Alexander Plekhanov & Raju Singh, 2005. "How Should Subnational Government Borrowing Be Regulated? Some Cross-Country Empirical Evidence," IMF Working Papers 05/54, International Monetary Fund. [Downloadable!]
  3. Heppke-Falk, Kirsten H. & Wolff, Guntram B., 2007. "Moral hazard and bail-out in fiscal federations: evidence for the German Länder," Discussion Paper Series 1: Economic Studies 2007,07, Deutsche Bundesbank, Research Centre. [Downloadable!]
    Other versions:
  4. Canzoneri, Matthew B & Cumby, Robert & Diba, Behzad, 1998. "Is the Price Level Determined by the Needs of Fiscal Solvency?," CEPR Discussion Papers 1772, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  5. Maurice Obstfeld & Giovanni Peri, 1998. "Regional non-adjustment and fiscal policy," Economic Policy, CEPR, CES, MSH, vol. 13(26), pages 205-259, 04. [Downloadable!] (restricted)
  6. Bordignon, Massimo & Turati, Gilberto, 2003. "Bailing Out Expectations and Health Expenditure in Italy," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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