Are Transfer-Dependent Governments More Creditworthy Reassessing the Fiscal Federal Foundations of Subnational Default Risk

May 19, 2026

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The article examines why Canadian provinces with high debt levels faced unexpectedly low default-risk pricing in bond markets, as bond interest rates for highly indebted provinces stayed close to those of the least indebted. Drawing on comparative and fiscal federalism research, it argues that greater dependence on central transfers can reduce standalone creditworthiness by limiting subnational revenue-raising capacity and exposing governments to transfer cuts during crises. It tests the argument with cross-national data on bailout expectations and Moody’s standalone credit ratings, finding transfer dependence relates negatively to standalone ratings but not positively to bailout expectations.

LanguageEnglish

CategoryResearch & Report

FormatPDF

Pages23

Reading Time58 min

# Introduction
# Theory and Argument
# Data and Method
## Empirical Findings
# Contribution to Literature

FAQs

How do the paper’s findings relate transfer dependence to bailout expectations?

The study finds no evidence of a positive relationship between transfer dependence and bailout expectations; rating report reviews show no relationship and statistical results show a negative but modest and uncertain effect.

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May 19, 2026