Is It Is or Is It Ain't My Obligation? Regional Debt in a Fiscal Federation

36 Pages Posted: 22 Oct 2008

See all articles by Russell Cooper

Russell Cooper

University of Texas at Austin - Department of Economics; National Bureau of Economic Research (NBER)

Hubert Kempf

Ecole Normale Superieure de Cachan (ENS)

Dan Peled

University of Haifa - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Abstract

This article studies the repayment of regional debt in a multiregion economy with a central authority: Who pays the obligation issued by a region? With commitment, the central government will use its economy-wide taxation power in support of its objective to smooth distortionary taxes and consumption across regions. Absent commitment, this tool of the central government may be exploited to induce it to bail out regional government deficits. We characterize the conditions under which bailouts occur and their welfare implications. In particular, we show when the gains from a federation may outweigh the welfare costs of a bailout. We use these insights to comment on actual fiscal relations in three quite different federations: the United States, the European Union, and Argentina.

Suggested Citation

Cooper, Russell W. and Kempf, Hubert and Peled, Dan, Is It Is or Is It Ain't My Obligation? Regional Debt in a Fiscal Federation. International Economic Review, Vol. 49, Issue 4, pp. 1469-1504, November 2008. Available at SSRN: https://ssrn.com/abstract=1287428 or http://dx.doi.org/10.1111/j.1468-2354.2008.00519.x

Russell W. Cooper (Contact Author)

University of Texas at Austin - Department of Economics ( email )

Austin, TX 78712
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Hubert Kempf

Ecole Normale Superieure de Cachan (ENS) ( email )

61 avenue du président Wilson
Cachan, Paris 94235
France

Dan Peled

University of Haifa - Department of Economics ( email )

Haifa 31905
Israel

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
1
Abstract Views
328
PlumX Metrics