The Dutch local government bailout puzzle
By: Allers, Maarten A.
Material type:
ArticlePublisher: 2015Description: p.451-470.Subject(s): Local government
In:
Public AdministrationSummary: The fiscal federalism and public choice literatures stress that government bailouts should be ruled out as they increase the probability that jurisdictions will incur unsustainable debt levels or take excessive risk (moral hazard problem). The recent problems in the euro area seem to confirm this view. However, in the Netherlands, the law explicitly stipulates that local governments which are unable to balance their books will receive a bailout grant. Surprisingly, this does not seem to create problems. Few local governments apply for bailout, and the amounts they receive are modest. We analyse the Dutch case and investigate possible explanations for this apparent anomaly. Our results challenge the dominant view in the literature. It is possible to avoid fiscal irresponsibility by means other than a no-bailout policy. - Reproduced.
| Item type | Current location | Call number | Vol info | Status | Date due | Barcode |
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Articles
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Indian Institute of Public Administration | Volume no: 93, Issue no: 2 | Available | AR109230 |
The fiscal federalism and public choice literatures stress that government bailouts should be ruled out as they increase the probability that jurisdictions will incur unsustainable debt levels or take excessive risk (moral hazard problem). The recent problems in the euro area seem to confirm this view. However, in the Netherlands, the law explicitly stipulates that local governments which are unable to balance their books will receive a bailout grant. Surprisingly, this does not seem to create problems. Few local governments apply for bailout, and the amounts they receive are modest. We analyse the Dutch case and investigate possible explanations for this apparent anomaly. Our results challenge the dominant view in the literature. It is possible to avoid fiscal irresponsibility by means other than a no-bailout policy. - Reproduced.
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