The Dutch Local Government Bailout Puzzle

Abstract

The fiscal federalism and public choice literatures stress that government bailouts should be ruled out as they increase the probability that jurisdictions will incur unsustainable debt levels or take excessive risk (moral hazard problem). The recent problems in the euro area seem to confirm this view. However, in the Netherlands, the law explicitly stipulates that local governments which are unable to balance their books will receive a bailout grant. Surprisingly, this does not seem to create problems. Few local governments apply for bailout, and the amounts they receive are modest. We analyse the Dutch case and investigate possible explanations for this apparent anomaly. Our results challenge the dominant view in the literature. It is possible to avoid fiscal irresponsibility by means other than a no‐bailout policy.

Regional governance and public accountability in planning for new housing: A new approach in South Holland, the Netherlands

“…When they are judged inadequate, the province may limit the concerned municipality’s financial discretion, challenging the flexible implementation of the municipal coalition programme. Hence, municipalities are generally motivated to maintain sound financial discipline, which corresponds with the findings of Allers (2010: 468) that loss of financial self-determination matters to local politicians who are “more than office-seekers”. Hence, regional planning on top of the formal financial accountability line elucidates “ends” for using financial “means” when the municipality undertakes development projects.…”

Regional governance and public accountability in planning for new housing: A new approach in South Holland, the Netherlands

“…When they are judged inadequate, the province may limit the concerned municipality’s financial discretion, challenging the flexible implementation of the municipal coalition programme. Hence, municipalities are generally motivated to maintain sound financial discipline, which corresponds with the findings of Allers (2010: 468) that loss of financial self-determination matters to local politicians who are “more than office-seekers”. Hence, regional planning on top of the formal financial accountability line elucidates “ends” for using financial “means” when the municipality undertakes development projects.…”

Hardening the budget constraint: Institutional reform in the financial management of Hungarian local governments

“…However, this time the central government picked up the gauntlet and set strict conditions for another bailout. This deterrent example may represent a shift towards establishing fiscal discipline for the local governments, in line with the findings of Dietrichson -Ellegard (2012) and Allers (2014).…”

Preventing Local Government Defaults: No-Bailout Policy and Its Alternatives

“…This makes it hard for municipalities to break the medium-term budget balance rule without any repercussions. Meanwhile, we can rule out several other potential explanations in the Netherlands (Allers 2014). For example, there are no binding rules that restrict municipal borrowing.…”

Regional governance and public accountability in planning for new housing: A new approach in South Holland, the Netherlands

“…When they are judged inadequate, the province may limit the concerned municipality’s financial discretion, challenging the flexible implementation of the municipal coalition programme. Hence, municipalities are generally motivated to maintain sound financial discipline, which corresponds with the findings of Allers (2010: 468) that loss of financial self-determination matters to local politicians who are “more than office-seekers”. Hence, regional planning on top of the formal financial accountability line elucidates “ends” for using financial “means” when the municipality undertakes development projects.…”

Hardening the budget constraint: Institutional reform in the financial management of Hungarian local governments

“…However, this time the central government picked up the gauntlet and set strict conditions for another bailout. This deterrent example may represent a shift towards establishing fiscal discipline for the local governments, in line with the findings of Dietrichson -Ellegard (2012) and Allers (2014).…”

Preventing Local Government Defaults: No-Bailout Policy and Its Alternatives

“…This makes it hard for municipalities to break the medium-term budget balance rule without any repercussions. Meanwhile, we can rule out several other potential explanations in the Netherlands (Allers 2014). For example, there are no binding rules that restrict municipal borrowing.…”

Regional governance and public accountability in planning for new housing: A new approach in South Holland, the Netherlands

“…When they are judged inadequate, the province may limit the concerned municipality’s financial discretion, challenging the flexible implementation of the municipal coalition programme. Hence, municipalities are generally motivated to maintain sound financial discipline, which corresponds with the findings of Allers (2010: 468) that loss of financial self-determination matters to local politicians who are “more than office-seekers”. Hence, regional planning on top of the formal financial accountability line elucidates “ends” for using financial “means” when the municipality undertakes development projects.…”

Hardening the budget constraint: Institutional reform in the financial management of Hungarian local governments

“…However, this time the central government picked up the gauntlet and set strict conditions for another bailout. This deterrent example may represent a shift towards establishing fiscal discipline for the local governments, in line with the findings of Dietrichson -Ellegard (2012) and Allers (2014).…”

Preventing Local Government Defaults: No-Bailout Policy and Its Alternatives

“…This makes it hard for municipalities to break the medium-term budget balance rule without any repercussions. Meanwhile, we can rule out several other potential explanations in the Netherlands (Allers 2014). For example, there are no binding rules that restrict municipal borrowing.…”