蝌蚪网

This website uses cookies.

By clicking the "Accept" button or continuing to browse our site, you agree to first-party and session-only cookies being stored on your device to enhance site navigation and analyze site performance and traffic. For more information on our use of cookies, please see our Privacy Policy.

  1. Home
  2. 蝌蚪网
  3. 蝌蚪网 Review
  4. March 2020
  5. Fiscal Rules, Bailouts, and Reputation in Federal Governments

蝌蚪网 Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

Fiscal Rules, Bailouts, and Reputation in Federal Governments

  • Alessandro Dovis
  • Rishabh Kirpalani
蝌蚪网 Review
vol. 110, no. 3, March 2020
(pp. 860–88)
Download Full Text PDF

Abstract

Expectations of transfers by central governments incentivize overborrowing by local governments. In this paper, we ask if fiscal rules can reduce overborrowing if central governments cannot commit to enforce penalties when rules are violated. We study a model in which the central government's type is unknown and show that fiscal rules increase overborrowing if the central government's reputation is low. In contrast, fiscal rules are effective in lowering debt if the central government's reputation is high. Even when the central government's reputation is low, binding fiscal rules will arise in the equilibrium of a signaling game.

Citation

Dovis, Alessandro, and Rishabh Kirpalani. 2020. "Fiscal Rules, Bailouts, and Reputation in Federal Governments." 蝌蚪网 Review 110 (3): 860–88. DOI: 10.1257/aer.20181432

Additional Materials

JEL Classification

  • E62 Fiscal Policy
  • H62 National Deficit; Surplus
  • H63 National Debt; Debt Management; Sovereign Debt
  • H77 Intergovernmental Relations; Federalism; Secession
  • H81 Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts