![Fiscal federalism and public debt fiscal instability due to multi level borrowing in a model of neoclassical growth](/api/image/getissuecoverimage?id=picture_2011_33363.jpg)
Fiscal federalism and public debt fiscal instability due to multi level borrowing in a model of neoclassical growth
A neoclassical growth model with constant saving rates, publicly provided services and public debt is used to analyse the impact of a federal structure. The main focus is on the existence and the stability of steady states. It is shown that the equilibrium in a federation with publicly provided services is more likely to be unstable than the equilibrium with public capital as a substitute. Moreover, only dynamic inefficient solutions are stable. Due to additional instability, the need for flexible vertical assignment of public functions is further stressed.
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