Template-Type: ReDIF-Paper 1.0

Author-Name: Karolina Kaiser
Author-X-Name-First: Karolina
Author-X-Name-Last: Kaiser

Title: Restricted Bailouts and the Commitment Problem in Federations
	
Abstract: Standard models of soft budget constraints consider bailouts as pure
monetary transfers. However, in practice often additional obligations or
restrictions, such as savings goals, are linked to monetary bailouts. This
paper analyzes in a model of a federation if such restrictions change eco-
nomic outcomes in an soft budget constraint environment and under what
circumstances they can increase welfare as compared to pure soft budget
and hard budget regimes. We ?nd that restrictions generally harden budget
constraints, but not necessarily increase welfare. The evaluation crucially
depends on the tax endowment of the central government and on the shape
of preferences.
Length:  34 pages
Creation-Date:  2008-06
File-URL: http://www.bgpe.de/texte/DP/062_kaiser.pdf
File-Format: Application/pdf
File-Function: First version, 2008
Number: 062
Classification-JEL: H77, H74, H63
Keywords: bailouts, soft budget constraints, federalism
Handle: RePEc:bav:wpaper:062_kaiser