TY  - JOUR
AU  - Cooper,Russell
AU  - Kempf,Hubert
AU  - Peled,Dan
TI  - Is It Is or Is It Ain't My Obligation? Regional Debt in a Fiscal Federation
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11655
PY  - 2005
Y2  - October 2005
UR  - http://www.nber.org/papers/w11655
L1  - http://www.nber.org/papers/w11655.pdf
N1  - Author contact info:
Russell Cooper
Department of Economics
The Pennsylvania State University
611 Kern
State College, PA 16802
E-Mail: russellcoop@gmail.com

Hubert Kempf
Ecole Normale Superieure, Cachan,
and Paris School of Economics
E-Mail: kempf@univ-paris1.fr

Dan Peled
Department of Economics
University of Haifa
Haifa 31905, ISRAEL
E-Mail: dpeled@econ.haifa.ac.il
AB  - This paper studies the repayment of regional debt in a multi-region economy with a central authority: who pays the obligation issued by a region? With commitment, a central government will use its taxation power to smooth distortionary taxes across regions. Absent commitment, the central government may be induced to bailout the regional government in order to smooth consumption and distortionary taxes across the regions. We characterize the conditions under which bailouts occur and their welfare implications. The gains to creating a federation are higher when the (government spending) shocks across regions are negatively correlated and volatile. We use these insights to comment on actual fiscal relations in three quite different federations: the US, the European Union and Argentina.
ER  -