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Subnational fiscal behavior under the expectation of federal bailouts

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  • Ernesto Crivelli

Abstract

This paper analyzes how subnational governments allocate own resources between current spending and infrastructure investment and decide on borrowing under the expectation of federal bailouts. It is assumed that states' borrowing possibilities increase with the expectation of such bailouts because the financial system is willing to fund a higher amount of public investment projects. As a result, state governments engage in an opportunistic behavior: they allocate a higher (lower) than optimal amount of own resources to current spending (infrastructure investment) and over‐borrow.

Suggested Citation

  • Ernesto Crivelli, 2011. "Subnational fiscal behavior under the expectation of federal bailouts," Journal of Economic Policy Reform, Taylor and Francis Journals, vol. 14(1), pages 41-57.
    • Handle: RePEc:taf:jecprf:v:14:y:2011:i:1:p:41-57
    DOI: 10.1080/17487870.2011.543760
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    Cited by:

    1. Agnieszka Kozera & Małgorzata Dworakowska-Raj & Aldona Standar, 2021. "Role of Local Investments in Creating Rural Development in Poland," Energies, MDPI, vol. 14(6), pages 1-30, March.
    2. Ricardo Lopes Cardoso & Ricardo Rocha de Azevedo & José Alexandre Magrini Pigatto & Bernardo de Abreu Guelber Fajardo & Armando Santos Moreira da Cunha, 2023. "Lessons from Brazil's unsuccessful fiscal decentralization policy to fight COVID‐19," Public Administration & Development, Blackwell Publishing, vol. 43(2), pages 106-119, May.
    3. Minjie Deng, 2024. "A Note on Allowing State Bankruptcy," Discussion Papers dp24-05, Department of Economics, Simon Fraser University.

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