This paper analyses the impact of both the nature of regional public spending and
the federal government’s fiscal tools on the softness of the regional budget constraint
and the regional provision of public good. We show that i) whatever the nature of
regional public spending, the regional budget constraint is harder when the federal
government can no longer manipulate its lump sum tax and ii) under the assumption
that the federal government can no longer manipulate its lump sum tax, the federal
bailout is lower when the region provides a public input rather than a public good but
the regional budget constraint can be either softer or harder.