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Debt bailouts and constitutions

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Kohlscheen, Emanuel (2008) Debt bailouts and constitutions. Working Paper. Coventry: University of Warwick, Department of Economics. (Warwick economic research papers).

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Abstract

A demand based theory of sub-national debt bailouts is presented. It is shown that revenue sharing (RS) arrangements alter the demand for bailouts among politicians with regional constituencies as a bailout usually implies a shift of taxation to the federal tier. Automatic RS may lead to the formation of pro-bailout coalitions formed by indebted states and states that are net recipients of the RS arrangement. Also, RS can act as a commitment device for compensating payments among state representatives, making a bailout politically rational. The model shows that the state debt bailouts approved by the Brazilian Senate prior to the enactment of the Fiscal Responsibility Act were fully consistent with politicians that maximize the proceeds accruing to their constituencies.

Item Type: Working or Discussion Paper (Working Paper)
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HJ Public Finance
Divisions: Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH): Debts, Public, Loans -- Government guaranty, Revenue sharing, Brazil -- Economic conditions -- 1985-, South America -- Economic conditions -- 1918-
Series Name: Warwick economic research papers
Publisher: University of Warwick, Department of Economics
Place of Publication: Coventry
Date: 2008
Number: No.862
Number of Pages: 35
Status: Not Peer Reviewed
Access rights to Published version: Open Access
Funder: Economic and Social Research Council (Great Britain) (ESRC)
Version or Related Resource: Kohlscheen, E. (2008). Debt bailouts and constitutions. Economic Inquiry, 46(3), pp. 480-492. http://wrap.warwick.ac.uk/id/eprint/29306
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References:

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URI: http://wrap.warwick.ac.uk/id/eprint/1354

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