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Assist or desist? Conditional bailouts and fiscal discipline in local governments

Dietrichson, Jens and Ellegård, Lina Maria LU (2015) In European Journal of Political Economy 38. p.153-168
Abstract
Central government bailouts of local governments are commonly viewed as a recipe for local fiscal indiscipline, as local governments learn that the center will come to the rescue in times of trouble. However, little is known about the consequences of bailouts granted conditional on local governments first making efforts to improve the situation. We examine a case in which the Swedish central government provided conditional grants to 36 financially troubled municipalities. We use the synthetic control method to identify suitable comparison units for each of the 36 municipalities. To compare the development of costs and the fiscal surplus of admitted municipalities to that of their most similar counterparts during the decade after the... (More)
Central government bailouts of local governments are commonly viewed as a recipe for local fiscal indiscipline, as local governments learn that the center will come to the rescue in times of trouble. However, little is known about the consequences of bailouts granted conditional on local governments first making efforts to improve the situation. We examine a case in which the Swedish central government provided conditional grants to 36 financially troubled municipalities. We use the synthetic control method to identify suitable comparison units for each of the 36 municipalities. To compare the development of costs and the fiscal surplus of admitted municipalities to that of their most similar counterparts during the decade after the program, we then estimate fixed effects regressions on the resulting sample. The analysis suggests that conditional bailouts did not erode, and may even have improved, fiscal discipline. (C) 2015 Elsevier B.V. All rights reserved. (Less)
Please use this url to cite or link to this publication:
author
organization
publishing date
type
Contribution to journal
publication status
published
subject
keywords
Bailouts, Local governments, Fiscal discipline, Synthetic control method
in
European Journal of Political Economy
volume
38
pages
153 - 168
publisher
Tranfer Verlag, Regensburg, FRG
external identifiers
  • wos:000355373700011
  • scopus:84924234704
ISSN
0176-2680
DOI
10.1016/j.ejpoleco.2015.02.004
language
English
LU publication?
yes
id
72b163d8-508b-4e5f-954f-e160cb92ce9b (old id 7612551)
date added to LUP
2015-07-21 16:14:41
date last changed
2017-11-05 03:12:13
@article{72b163d8-508b-4e5f-954f-e160cb92ce9b,
  abstract     = {Central government bailouts of local governments are commonly viewed as a recipe for local fiscal indiscipline, as local governments learn that the center will come to the rescue in times of trouble. However, little is known about the consequences of bailouts granted conditional on local governments first making efforts to improve the situation. We examine a case in which the Swedish central government provided conditional grants to 36 financially troubled municipalities. We use the synthetic control method to identify suitable comparison units for each of the 36 municipalities. To compare the development of costs and the fiscal surplus of admitted municipalities to that of their most similar counterparts during the decade after the program, we then estimate fixed effects regressions on the resulting sample. The analysis suggests that conditional bailouts did not erode, and may even have improved, fiscal discipline. (C) 2015 Elsevier B.V. All rights reserved.},
  author       = {Dietrichson, Jens and Ellegård, Lina Maria},
  issn         = {0176-2680},
  keyword      = {Bailouts,Local governments,Fiscal discipline,Synthetic control method},
  language     = {eng},
  pages        = {153--168},
  publisher    = {Tranfer Verlag, Regensburg, FRG},
  series       = {European Journal of Political Economy},
  title        = {Assist or desist? Conditional bailouts and fiscal discipline in local governments},
  url          = {http://dx.doi.org/10.1016/j.ejpoleco.2015.02.004},
  volume       = {38},
  year         = {2015},
}