Fiscal Rules, Bailouts, and Reputation in Federal Governments

• 成果类型: Article
• 署名作者: Dovis, Alessandro; Kirpalani, Rishabh
• 署名单位: University of Pennsylvania; University of Wisconsin System; University of Wisconsin Madison
• 刊物名称: AMERICAN ECONOMIC REVIEW
• ISSN/ISSBN: 0002-8282
• DOI: 10.1257/aer.20181432
• 发表日期: 2020
• 页码: 860-888
• 关键词: time inconsistency; DISCRETION

摘要

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.