This article evaluates the efficiency of a market for tradable deficit permits as a mechanism for implementing budgetary austerity at the local level, when the initial allocation of deficit rights can be manipulated. The way déficit rights are allocated in the market turns out to be decisive...

In this article, we endogenously derive the soft budget constraint phenomenon in a federation when fiscal decisions are delegated to regions. In this framework, the softness of the regional budget constraint results from federal government cross-subsidization objective. We analyse the impact of...