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Fiscal federalism and soft budget constraint: does the nature of public spending matter?

Author

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  • Marie-Laure Breuillé

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

  • Thierry Madiès
  • Emmanuelle Taugourdeau

Abstract

This paper analyses the impact of both the nature of regional public spending and the federal government's fiscal tools on the softness of the regional budget constraint and the regional provision of public good. We show that i) whatever the nature of regional public spending, the regional budget constraint is harder when the federal government can no longer manipulate its lump sum tax and ii) under the assumption that the federal government can no longer manipulate its lump sum tax, the federal bailout is lower when the region provides a public input rather than a public good but the regional budget constraint can be either softer or harder.

Suggested Citation

  • Marie-Laure Breuillé & Thierry Madiès & Emmanuelle Taugourdeau, 2007. "Fiscal federalism and soft budget constraint: does the nature of public spending matter?," Working Papers hal-04139222, HAL.
    • Handle: RePEc:hal:wpaper:hal-04139222
    Note: View the original document on HAL open archive server: https://hal.science/hal-04139222
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    References listed on IDEAS

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    11. Pettersson-Lidbom, Per & Dahlberg, Matz, 2003. "An Empirical Approach for Evaluating Soft Budget Constraints," Working Paper Series 2003:28, Uppsala University, Department of Economics.
    12. Michael J. Keen & Christos Kotsogiannis, 2002. "Does Federalism Lead to Excessively High Taxes?," American Economic Review, American Economic Association, vol. 92(1), pages 363-370, March.
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    Cited by:

    1. Karolina Kaiser, 2008. "Restricted Bailouts and the Commitment Problem in Federations," Working Papers 062, Bavarian Graduate Program in Economics (BGPE).
    2. Veronica Grembi & Alvaro Manoel, 2012. "Fiscal rules for subnational governments? Evidence from Latin America," Chapters, in: Giorgio Brosio & Juan P. Jiménez (ed.), Decentralization and Reform in Latin America, chapter 12, pages iii-iii, Edward Elgar Publishing.

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    More about this item

    Keywords

    Soft Budget Constraint; Fiscal Federalism; Tax Competition; Public Input;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations

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