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DEBT BAILOUTS AND CONSTITUTIONS
Author(s) -
KOHLSCHEEN EMANUEL
Publication year - 2008
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.2007.00102.x
Subject(s) - bailout , revenue sharing , revenue , debt , economics , monetary economics , state (computer science) , financial system , finance , business , macroeconomics , financial crisis , algorithm , computer science
A demand‐based theory of subnational debt bailouts is presented. It is shown that demand for bailouts among politicians with regional constituencies is affected by revenue sharing arrangements as a bailout implies a shift of taxation toward the federal tier. Automatic revenue sharing may lead to the formation of pro‐bailout coalitions formed by indebted states and states that are net recipients of the revenue sharing arrangement. The model shows that the state debt bailouts approved by the Brazilian Senate prior to the enactment of the Fiscal Responsibility Act were consistent with politicians who maximize the proceeds accruing to their constituencies. ( JEL H70, D70)