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A Fiscal Federalism Analysis of Debt Policies by Sovereign Regional Governments

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  • Neil Bruce

Abstract

This paper takes a fiscal federalism approach to analyzing debt issue by subfederal (regional) governments. Households have a short-run attachment to a particular region but are free to migrate between regions in the long run. Regional governments choose their fiscal policies independently. It is shown that the Nash equilibrium of regional fiscal policies is one where migration is efficient and households are insured against the idiosyncratic part of shocks occurring in the region in which they live. However, regional governments issue too much debt relative to the level that would be issued under a coordinated policy, such as that which might be carried out by a federal government.

Suggested Citation

  • Neil Bruce, 1995. "A Fiscal Federalism Analysis of Debt Policies by Sovereign Regional Governments," Canadian Journal of Economics, Canadian Economics Association, vol. 28(s1), pages 195-206, November.
    • Handle: RePEc:cje:issued:v:28:y:1995:i:s1:p:195-206
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    Citations

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    Cited by:

    1. Mr. Guiseppe Pisauro, 2001. "Intergovernmental Relations and Fiscal Discipline: Between Commons and Soft Budget Constraints," IMF Working Papers 2001/065, International Monetary Fund.
    2. Gordon, Grey & Guerron-Quintana, Pablo, 2024. "On regional borrowing, default, and migration," Journal of International Economics, Elsevier, vol. 150(C).
    3. Grey Gordon & Pablo Guerrón-Quintana, 2021. "Public Debt, Private Pain: Regional Borrowing, Default, and Migration," Working Paper 21-13, Federal Reserve Bank of Richmond.
    4. Wildasin, David E., 2004. "The Institutions of Federalism: Toward an Analytical Framework," National Tax Journal, National Tax Association;National Tax Journal, vol. 57(2), pages 247-272, June.
    5. Christian Schultz & Tomas Sjöström, 2004. "Public Debt, Migration, and Shortsighted Politicians," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 6(5), pages 655-674, December.
    6. Wildasin, David E., 1997. "Externalities and bailouts : hard and soft budget constraints in intergovernmental fiscal relations," Policy Research Working Paper Series 1843, The World Bank.
    7. Schultz, Christian & Sjostrom, Tomas, 2001. "Local public goods, debt and migration," Journal of Public Economics, Elsevier, vol. 80(2), pages 313-337, May.
    8. Luigi De Iaco & Domenicantonio Fausto, 2006. "Public Debt and Federalist Reform," QA - Rivista dell'Associazione Rossi-Doria, Associazione Rossi Doria, issue 1, January.
    9. Robin Boadway & Katherine Cuff, 2017. "The impressive contribution of Canadian economists to fiscal federalism theory and policy," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 50(5), pages 1348-1380, December.
    10. Darong Dai & Dennis W. Jansen & Liqun Liu, 2021. "Inter-jurisdiction migration and the fiscal policies of local governments," Journal of Economics, Springer, vol. 132(2), pages 133-164, March.
    11. Akai, Nobuo & Sato, Motohiro, 2011. "A simple dynamic decentralized leadership model with private savings and local borrowing regulation," Journal of Urban Economics, Elsevier, vol. 70(1), pages 15-24, July.
    12. Hahn, Jörg-Uwe & Konrad, Kai A. & Janeba, Eckhard & Groneck, Max & Plachta, Robert C., 2008. "Föderalismuskommission II: Neue Schuldenregelung für Bund und Länder und Altschuldenhilfe - wie sollten die Finanzbeziehungen von Bund und Ländern neu geordnet werden?," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 61(09), pages 3-14.
    13. Pérez López, Gemma & Plata Díaz, Ana María & Zafra Gómez, José L. & López Hernández, Antonio M., 2013. "Deuda viva municipal en un contexto de crisis económica: análisis de los factores determinantes y de las formas de gestión," Revista de Contabilidad - Spanish Accounting Review, Elsevier, vol. 16(2), pages 83-93.
    14. Hikaru Ogawa & Mitsuhiro Yano, 2007. "Local Public Debt with Overlapping Generations," Economics of Governance, Springer, vol. 8(1), pages 51-59, January.
    15. Junichi Nagami & Hikaru Ogawa, 2011. "Partial coordination in local debt policies," Applied Economics Letters, Taylor & Francis Journals, vol. 18(18), pages 1785-1787, December.
    16. Alfons J. Weichenrieder, 2009. "A Note on Local Public Investment and Debt Limitation in a Federation," Finnish Economic Papers, Finnish Economic Association, vol. 22(1), pages 3-8, Spring.

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