Fiscal Rules, Bailouts, and Reputation in Federal Governments / Alessandro Dovis, Rishabh Kirpalani.

Format:

Book

Author/Creator:

Dovis, Alessandro.

Contributor:

National Bureau of Economic Research.

Kirpalani, Rishabh.

Series:

Working Paper Series (National Bureau of Economic Research) no. w23942.

NBER working paper series no. w23942

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2017.

Summary:

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. 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.

Notes:

Print version record

October 2017.