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Fiscal Decentralization and Borrowing Costs: The Case of Local Governments

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  • Luiz R. De Mello Jr.

    (Catholic University of Brasília, Brazil, ldemello@imf.org)

Abstract

Borrowing costs vary across different levels of government. Local governments often face costlier borrowing than their higher level counterparts. This article shows that the decentralization of expenditure functions and revenue sources to lower tiers of government has a bearing on local government borrowing costs. Empirical evidence is provided for a sample of industrial and developing economies in the period 1970 to 1995, using three different fiscal decentralization indicators and two different borrowing cost indices. The findings are robust to the inclusion of controls for additional determinants of subnational borrowing costs. An important implication of these results is that policies aimed at disciplining subnational finances in the process of fiscal decentralization also tend to reduce subnational borrowing costs.

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Bibliographic Info

Article provided by in its journal Public Finance Review.

Volume (Year): 29 (2001)
Issue (Month): 2 (March)
Pages: 108-138

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Handle: RePEc:sae:pubfin:v:29:y:2001:i:2:p:108-138

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Cited by:
  1. Luiz de Mello, 2007. "Local Government Finances: The Link between Intergovernmental Transfers and Net Worth," OECD Economics Department Working Papers 581, OECD Publishing.
  2. Anwar Shah & Theresa Thompson & Heng-fu Zou, 2004. "Decentralising the public sector: The Impact of Decentralisation on Service Delivery, Corruption, Fiscal Management and Growth in Developing and Emerging Market Economies: A Synthesis of Empirical Evi," CEMA Working Papers 492, China Economics and Management Academy, Central University of Finance and Economics.
  3. Christoph A. Schaltegger & Lars P. Feld, 2007. "Are Fiscal Adjustments less Successful in Decentralized Governments?," CESifo Working Paper Series 1946, CESifo Group Munich.
  4. Luiz de Mello & Douglas Sutherland, 2014. "Financing Infrastructure," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1409, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  5. Dhritidyuti Bose & Rajeev Jain & Lakshmanan L, 2011. "Determinants of Primary Yield Spreads of States in India: An Econometric Analysis," Working Papers id:4370, eSocialSciences.

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