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How Should Subnational Government Borrowing Be Regulated? Some Cross-Country Empirical Evidence

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  • Alexander Plekhanov
  • Raju Jan Singh

Abstract

Countries have adopted various institutional responses to subnational government borrowing. Using a sample of 44 countries 1982-2000, this paper provides a panel data analysis to determine the most effective borrowing constraints for containing local fiscal deficits. The results suggest that no single institutional arrangement is superior under all circumstances. The appropriateness of specific arrangements depends upon other institutional characteristics, particularly the degree of vertical fiscal imbalance, the existence of any bailout precedent, and the quality of fiscal reporting.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 05/54.

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Length: 33
Date of creation: 01 Mar 2005
Date of revision:
Handle: RePEc:imf:imfwpa:05/54

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Keywords: Budget deficits; Deficit financing; Fiscal reforms; Government expenditures; subnational governments; fiscal imbalances; vertical fiscal imbalances; fiscal balances; fiscal balance; decentralization; fiscal outcomes; subnational government; fiscal imbalance; vertical fiscal imbalance; fiscal federalism; fiscal rules; federalism; fiscal discipline; budget constraints; central government fiscal; fiscal decentralization; fiscal policy; subnational budget; public spending; fiscal performance; fiscal policies; subnational jurisdictions; public finance; government revenue; subnational surplus; fiscal deficits; subnational government expenditure; government expenditure; public expenditure; fiscal indiscipline; subnational debt; subnational authorities; intergovernmental transfers; budget constraint; fiscal institutions; debt service; fiscal affairs; fiscal affairs department; fiscal relations; fiscal reporting; government budget; tax collection; tax rates; fiscal rule; tax base; fiscal positions; intergovernmental fiscal; budget deficit; intergovernmental fiscal relations; local fiscal autonomy; budget surplus; fiscal deficit; fiscal burden; horizontal fiscal imbalances; ratio of government expenditure; taxation; fiscal pressure; tax revenues; government budget constraints; government budgets; national budget; fiscal adjustment; fiscal restraints; fiscal behavior; tax burden; fiscal problems; public debt; sustainable fiscal policy; general government expenditure; fiscal constitutions; tax competition; decentralized decision; fiscal revenue; expenditure decentralization; subnational government surplus; fiscal controls; fiscal framework; government budget deficit; fiscal stability; fiscal soundness; fiscal surpluses; subnational surpluses; local government budget; fiscal policy coordination; fiscal autonomy; decentralized governments; tax policy; tax administration; central government budget;

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References

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  1. Johansson, Eva, 2003. "Intergovernmental grants as a tactical instrument: empirical evidence from Swedish municipalities," Journal of Public Economics, Elsevier, vol. 87(5-6), pages 883-915, May.
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Cited by:
  1. Sebastian Galiani & Iván Torre & Gustavo Torrens, 2014. "Fiscal Federalism and Legislative Malapportionment: Causal Evidence from Independent but Related Natural Experiments," NBER Working Papers 19995, National Bureau of Economic Research, Inc.
  2. Baskaran, Thushyanthan, 2010. "On the Link Between Fiscal Decentralization and Public Debt in OECD Countries," MPRA Paper 21599, University Library of Munich, Germany.
  3. Sharma, Chanchal Kumar, 2007. "Rescuing the concept of vertical fiscal imbalance," MPRA Paper 39343, University Library of Munich, Germany, revised 2010.
  4. Thushyanthan Baskaran, 2012. "Tax Decentralization and Public Deficits in OECD Countries," Publius: The Journal of Federalism, Oxford University Press, vol. 42(4), pages 688-707, October.
  5. Baskaran, Thushyanthan, 2009. "Did the Maastricht treaty matter for macroeconomic performance?," MPRA Paper 30106, University Library of Munich, Germany.
  6. Peter Claeys & Raúl Ramos & Jordi Suriñach, 2007. "Fiscal Sustainability Across Government Tiers," Working Papers XREAP2007-14, Xarxa de Referència en Economia Aplicada (XREAP), revised 2007.
  7. Leonardo Letelier S., 2011. "Theory and evidence of municipal borrowing in Chile," Public Choice, Springer, vol. 146(3), pages 395-411, March.
  8. repec:idb:brikps:45398 is not listed on IDEAS
  9. Merkus, Erik & Allers, Maarten, 2013. "Soft budget constraint but no moral hazard? The Dutch local government bailout puzzle," Research Report 13014-EEF, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
  10. Van Hecke, Annelore, 2013. "Vertical debt spillovers in EMU countries," Journal of International Money and Finance, Elsevier, vol. 37(C), pages 468-492.
  11. Sharma, Chanchal Kumar, 2010. "Beyond Gaps and Imbalances: Re-Structuring the Debate on Intergovernmental Fiscal Relations," MPRA Paper 32145, University Library of Munich, Germany.
  12. Nobuki Mochida, 2008. "Subnational Borrowing in Japan : from 'Implicit Guarantee' to Market Discipline and Fiscal Rule," CIRJE F-Series CIRJE-F-541, CIRJE, Faculty of Economics, University of Tokyo.
  13. Peter Claeys & Raúl Ramos & Jordi Suriñach, 2007. "Fiscal sustainability across government tiers: an assessment of soft budget constraints," IREA Working Papers 200714, University of Barcelona, Research Institute of Applied Economics, revised Jul 2007.
  14. Luc Eyraud & Lusine Lusinyan, 2011. "Decentralizing Spending More Than Revenue," IMF Working Papers 11/226, International Monetary Fund.
  15. Yinqiu Lu & Tao Sun, 2013. "Local Government Financing Platforms in China: A Fortune or Misfortune?," IMF Working Papers 13/243, International Monetary Fund.
  16. Foremny, Dirk, 2011. "Vertical aspects of sub-national deficits: the impact of fiscal rules and tax autonomy in European countries," MPRA Paper 32998, University Library of Munich, Germany.
  17. Andrés Leal Marcos & Julio López Laborda, 2009. "Efectos externos del endeudamiento sobre la calificación crediticia de las Comunidades Autónomas," Hacienda Pública Española, IEF, vol. 189(2), pages 81-106, June.

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