This paper considers a simple dynamic decentralized leadership model with local borrowing and regional productivity-enhancing investment. In this model, the central government is benevolent but cannot commit to ex post intergovernmental transfer policies, while local governments act...

There is a growing body of literature on the commitment problem of interregional transfers. The problem occurs because of an ex post bailout by a central government leading to ex ante adverse incentive consequences for a local government. However, different models have yielded different economic...