On the provision of public goods under credit constraints

Abstract

This article develops a model with indivisible infrastructure projects which are too large to operate on regional level due to credit constraints. We investigate the performance of different forms of centralized governments. Our focus is on central legislatures with regional representatives with and without agenda setter. We show that a central legislature without agenda setter performs better in the case of a soft credit constraint, whereas a central legislature with agenda setter is more successful in the case of a hard credit constraint.