Lade Inhalt...

Fiscal Rules, Bailouts, and Reputation in Federal Governments

A Report on Alessandro Dovis and Rishabh Kirpalani's 2018 paper

Hausarbeit (Hauptseminar) 2019 16 Seiten

VWL - Sonstiges

Zusammenfassung

The question of why regions, that cooperate in a federal union, overborrow—meaning that they issue more debt than would be beneficial from a point-of-view of intertemporal efficiency—is of utmost relevance in many contexts. Traditionally, the role of fiscal rules (i.e. caps on debt issuance levels with punishment payments upon violation) has been emphasized in overcoming the root of the problem: that central authorities in federal unions cannot commit to not use their funds to bail out overindebted members at the expense of other members. Dovis & Kirpalani, however, ask an important question: what happens if the central authority also cannot commit to enforcing the fiscal rules? In their paper, they show that if the central authority has a low reputation (i.e. low probability of enforcing the fiscal rules and the no-bailout-clause), fiscal rules are not only ineffective, but they can even lead to a higher debt issuance and exacerbate the overborrowing problem.

This report aims at outlining Dovis & Kirpalani’s reasoning for their central claim, thus sketching out their proofs and providing intuition for their results. Furthermore, a short assessment of their paper is provided, centering on validity and possible extensions.

Details

Seiten
16
Jahr
2019
ISBN (eBook)
9783668969124
ISBN (Buch)
9783668969131
Sprache
Englisch
Katalognummer
v492634
Institution / Hochschule
Universität Mannheim – Department of Economics
Note
1.0
Schlagworte
Monetary Monetary Policy Policy Game Dovis Kirpalani Economic- and Monetary Union

Autor

Teilen

Zurück

Titel: Fiscal Rules, Bailouts, and Reputation in Federal Governments