Effects of Govt Bailouts

Effects of Government Bails Outs for Corporation

BY

MUNIR VOHRA

TEXAS A&M COMMERCE

Crivelli, E. (2011). Subnational fiscal behavior under the expectation of federal bailouts. Journal of Economic Policy Reform, 14(1), 41-57.

This article aims at establishing how the sub-national governments apportion its resources to its present spending and to its infrastructural investments so as to establish what amount to borrow for corporate and federal bailouts. The article suggests that the likelihood of such borrowings by the state increases when there is high certainty of such bailouts as the state’s financial formation is determined to fund public investments. According to the author, these government bailouts result in an opportunistic venture by the state where it over spends on current public expenditure so as to increase the level of borrowing for the bailouts. This study establishes how the government fiscal trends are affected by its anticipation for corporate bailouts. The author analyzes various facts that predetermine the government’s fiscal behavior when it’s looking forward for a federal bailout. The research question for this study is whether the financial bailouts for corporations affect the sub-national government budget for the current fiscal year. The research hypothesis indicates that corporate bailout influences government borrowing trends.

The author uses various models and functions to back up his study. He first utilizes the government objective function which analyzes on how the government allocates its revenue in a normal fiscal year. The author goes on and uses the infrastructural model for states borrowing and expenditure to establish how the government spends on invests on infrastructure and when the need to borrow arises. The effects were measured through the development of complex financial formulas and models. The paper perfectly...