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State-Owned Banks and Fiscal Discipline

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Author Info

  • Jesus Gonzalez-Garcia
  • Francesco Grigoli

Abstract

State-owned banks may help to soften the financing constraints of public sector entities and consequently become a factor that hampers fiscal discipline. Using a panel dataset, we find that a larger presence of state-owned banks in the banking system is associated with more credit to the public sector, larger fiscal deficits, higher public debt ratios, and the crowding out of credit to the private sector. These results suggest that the lending practices of state-owned banks should be carefully assessed in any strategy to pursue fiscal discipline.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 13/206.

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Length: 26
Date of creation: 03 Oct 2013
Date of revision:
Handle: RePEc:imf:imfwpa:13/206

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Related research

Keywords: Public enterprises; Banks; Fiscal policy; Banking systems; Credit; Private sector; Public sector; Soft budget constraint; state-owned banks; fiscal discipline;

This paper has been announced in the following NEP Reports:

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  1. Carmen M. Reinhart & Kenneth S. Rogoff, 2010. "Growth in a Time of Debt," American Economic Review, American Economic Association, vol. 100(2), pages 573-78, May.
  2. Hauner, David, 2009. "Public debt and financial development," Journal of Development Economics, Elsevier, vol. 88(1), pages 171-183, January.
  3. Micco, Alejandro & Panizza, Ugo & Yanez, Monica, 2007. "Bank ownership and performance. Does politics matter?," Journal of Banking & Finance, Elsevier, vol. 31(1), pages 219-241, January.
  4. Khaled Sherif & Michael Borish & Alexandra Gross, 2003. "State-owned Banks in the Transition : Origins, Evolution, and Policy Responses," World Bank Publications, The World Bank, number 14851, October.
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