Public Debt, Bailouts and Common Bonds

Konferenzbeitrag

We look at a model where countries of di fferent size provide local public goods with positive spillovers. Matching grants can induce socially-e fficient expenditure levels, but countries can induce bailouts. We consider the characteristics of these bailouts in a subgame-perfect Nash equilibrium and how these characteristics are a ffected by the introduction of common bonds. Partial substitution of common for sovereign bonds has two implications. First, it lowers the average and marginal borrowing costs of countries, which may be eligible for bailouts. This eff ect leads to higher borrowing in these countries irrespective of their bailout expectations. Second, the lower borrowing costs mitigate the incentives of countries to induce a bailout and, therefore, constrain parameter set for which a soft budget constraint equilibrium exists.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Beiträge zur Jahrestagung des Vereins für Socialpolitik 2015: Ökonomische Entwicklung - Theorie und Politik - Session: Public Economics - Theory II ; No. C14-V2

Classification and Topics

• Classification: Wirtschaft ; Publicly Provided Goods: General ; State and Local Government; Intergovernmental Relations: General ; General Regional Economics (includes Regional Data)

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Kalamov, Zarko ; Staal, Klaas
• Event: Veröffentlichung
• (when): 2015

Further information

• Handle: http://hdl.handle.net/10419/112979
• Last update: 10.03.2025, 11:44 AM CET