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Is It Necessary to Regulate Local Governments’ Borrowing?

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  • Erzsébet Gál

    ()
    (Budapest Business School, Collage of Finance and Accountancy)

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    Abstract

    The international literature specifies four models to the rule of the local governmental indebtedness. The „regulated by the market model” and the „rule based model” are able to be in force in the Hungarian local governmental crediting market considering the Hungarian legal environment. The Hungarian empirical researches obtained the result that the Hungarian market follows the „regulated by the market model” from the models of Ter – Minassian – Craig. The essence of the market regulated model—that for the players of the subnational level the raising of external funds is determined by money and capital market developments and mechanisms—examining the domestic market by itself, cannot be substantiated. The success of the market regulated model is also hindered by the fact that market participants are not perfectly informed. Based upon my empirical researches and supplementing the models found in technical literature, I have established that at the Hungarian local governmental crediting market the regulation of indebtedness can be deemed a model “based on incurring risk”. The study tries to verify this thesis.

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    Bibliographic Info

    Article provided by State Audit Office of Hungary in its journal Public Finance Quarterly.

    Volume (Year): 56 (2011)
    Issue (Month): 1 ()
    Pages: 125-146

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    Handle: RePEc:pfq:journl:v:56:y:2011:i:1:p:125-146

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    Web page: http://www.asz.hu

    Related research

    Keywords: indebtedness; bank; crediting market; local government; risk;

    References

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    1. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
    2. Király, Júlia, 1995. "Válságspirál, avagy a magyar bankok tőkevesztésének egy lehetséges értelmezése
      [Crisis spiral, or: a possible interpretation of the loss of capital of die Hungarian banks]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(9), pages 819-837.
    3. Diamond, Douglas W, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Wiley Blackwell, vol. 51(3), pages 393-414, July.
    4. Komáromi, György, 2002. "A hatékony piacok elméletének elméleti és gyakorlati relevanciája
      [The theoretical and practical relevance of the theory of efficient markets]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(5), pages 377-395.
    5. Dániel Homolya & Gábor Szigel, 2008. "Lending to local governments: Risks and behaviour of Hungarian banks," MNB Bulletin, Magyar Nemzeti Bank (the central bank of Hungary), vol. 3(2), pages 20-29, September.
    6. Kapás, Judit, 2003. "A piac mint intézmény - szélesebb perspektívában
      [The market as an institution - in a broader perspective]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(12), pages 1076-1094.
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