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Economics of Governance

, Volume 20, Issue 1, pp 23–39 | Cite as

The role of matching grants as a commitment device in the federation model with a repeated soft budget setting

  • Nobuo AkaiEmail author
  • Motohiro Sato
Original Paper
  • 11 Downloads

Abstract

This paper revisits the soft budget versus the hard budget constraint in federations. By extending Besfamille and Lockwood (Int Econ Rev 49:577–593, 2008), who examine a case where the soft budget is ex ante favorable, we consider a model that allows the federal government to use a matching grant as an ex post policy instrument. We establish that this instrument acts as a commitment device and may improve social welfare compared with the situation in which the government’s ex ante policy options are limited to a hard or soft budget.

Keywords

Soft budget Matching grant Repeated game Commitment device 

JEL Classification

H71 H72 H73 H77 

Notes

References

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Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2019

Authors and Affiliations

  1. 1.Osaka School of International Public PolicyOsaka UniversityToyonakaJapan
  2. 2.Hitotsubashi UniversityKunitachiJapan

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