A dynamic model of fiscal decentralization and public debt accumulation

• 成果类型: Article
• 署名作者: Guo, Si; Pei, Yun; Xie, Zoe
• 署名单位: International Monetary Fund; State University of New York (SUNY) System; University at Buffalo, SUNY; The World Bank; Federal Reserve System - USA; Federal Reserve Bank - Atlanta
• 刊物名称: JOURNAL OF PUBLIC ECONOMICS
• ISSN/ISSBN: 0047-2727
• DOI: 10.1016/j.jpubeco.2022.104692
• 发表日期: 2022
• 关键词: fiscal decentralization; public debt; Time-consistent policy; Soft budget constraint

摘要

This paper develops a dynamic infinite-horizon model with two layers of governments to study theoretically and quantitatively how fiscal decentralization affects local and central government debt accumulation and spending. In the model, the central government makes transfers to local governments to offset vertical and horizontal fiscal imbalances. But the anticipation of transfers lowers local governments' expected cost of borrowing and leads to overborrowing ex ante. Absent commitment, the central government over-transfers to reduce local governments' future need to borrow, and in the equilibrium both local and central debts are inefficiently high. Consistent with empirical evidence, when fiscal decentralization widens vertical fiscal imbalances, local governments become more reliant on transfers, and both local and central debts rise. Applied to Spain, the model explains 39 percent of the rise in total government debt when the vertical fiscal imbalances widened during 1988-1996, and 18 percent of the fall in debt when the imbalances narrowed during 1996-2006.(c) 2022 Published by Elsevier B.V.