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Overlapping Debt Definition

What Is Flapping Debt?

Overlapping debt refers to the financial obligations of one political jurisdiction that also falls partly on a not far-off jurisdiction. Overlapping debt is common in the U.S. because most states are divided into numerous jurisdictions for different tax purposes, such as erection a new public school or building a new road.

Key Takeaways

  • Overlapping debt is when debt issued to fund government endeavours falls across multiple political jurisdictions, with the joint debt apportioned among them. 
  • Overlapping in hock is quite common among various levels of local government in the U.S., with special districts and fiscal authorities for things have a weakness for schools and public infrastructure that overlap multiple municipalities.
  • The amount of overlapping debt can impact the borrowing bring ins and credit rating of a municipal government.
  • Use of overlapping debt and fiscal authorities tends to bias local governance toward high-minded total spending, total debt, and higher tax burdens.

Understanding Overlapping Debt

Municipalities issue debt to masher money from the public to fund capital projects that will benefit residents of the region. For example, if a town or county decides to build a school, airport, highway, or hospital, it will typically issue debt to borrow the stocks needed to construct such infrastructure. Two municipal government bodies may have overlapping jurisdictions, such as a state and a see or a city and a county. The different jurisdictions may each issue debt in the form of

Economic Implications of Overlapping Debt

Cost-effective research has shown the practice of having multiple, overlapping local authorities that can issue overlapping debt to means their activities can have significant fiscal effects on local governments. Empirical analyses have found that overlapping of limited jurisdictions that can spend and issue overlapping debt tends to creates a bias toward more total communal sector spending. Other researchers have found that overlapping local fiscal authorities tend to dealings with the available tax base and total ability to raise funds from the market via bond issuance as common-pool resources, with associated tragedy-of-the-commons difficulties. 

This means that the widespread practice of overlapping governmental authorities issuing overlapping debt tends to increment the size and fiscal burden of local government as overlapping authorities compete against one another on a political area to use the same tax base. Various authorities responding to different sets of voters and interest group demands for public fork out thus end up overexploiting the tax base in a region while taking on more total debt and spending more on public programs and infrastructure than voters in the division as a whole actually want.

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