| Popis: |
Chapter 1 reviews the literature on fiscal federalism and state budget crises. It argues that previous efforts mostly have focused on bailouts, either on the cost of the “moral hazard” that follows from federal bailouts, or, alternatively, on the benefits bailouts create by preventing state budget cuts during recessions. But the literature largely ignores the interest the federal government has in credit being available to states and cities. States and cities produce most infrastructure in the United States for structural political reasons. Federal policies have always tried to ensure they have the access to the credit they need to do it. During a state or local fiscal crisis, the federal government must answer other than whether to provide a bailout or not. If it does not provide a bailout, the government then has to decide whether creditors or state or local taxpayers should bear the cost, either through defaults or austerity. Defaults reduce the harm to the economy from budget cuts in the short-run, but make it harder for jurisdictions to borrow going forward. The chapter ends by laying out the fiscal federalism trilemma. |
