The fiscal federalism and public choice literatures stress that government bailouts should be avoided as they increase the probability that governments incur unsustainable debt levels or take excessive risk (moral hazard problem). The current problems in the euro area seem to confirm this view....

In many countries, local governments operating on a small scale face a choice between amalgamation and cooperation. This paper applies a novel methodology to investigate the implications of this choice for operating efficiency. Using a unique micro-level dataset of over 11,000 loans made to both...