A common assumption among fiscal federal scholars is that transfer dependence enhances subnational credit ratings by implying national support in times of crisis. However, this article argues that while such transfers may increase the expectation of bailouts, they simultaneously suggest a limited capacity for local governments to raise revenue independently during distress.
Contrary to established views, stable and predictable equalization payments actually improve standalone credit assessments—unlike volatile or conditional transfers which undermine financial reliability.
Drawing on Moody\u2019s ratings data and international agency documents, this reassessment challenges the notion that transfer-dependent governments automatically enjoy higher bailout odds. The findings highlight a crucial distinction: it is not dependence itself but the stability of those payments that truly impacts subnational creditworthiness.
