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The effectiveness of institutional borrowing restrictions: Empirical evidence from Spanish municipalities

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  • Fermín Cabasés
  • Pedro Pascual

    ()

  • Jaime Vallés

Abstract

The need for restrictions on borrowing by subnational governments is a generally accepted notion that is justified both by public choice theory and by the fact that such restrictions are in force in the majority of decentralized countries. Furthermore, recent breaches of the Stability and Growth Pact of the European Union have led to the introduction of legislative tools aimed at balancing the budget at all levels of government have come to the forefront of interest in European public finance research. This paper is concerned with the financial situation and debt level of Spanish municipalities from 1988 to 2000. We have two main objectives: the first is to assess the value of mandatory limitations on municipal borrowing and past trends in the borrowing policies adopted by Spanish local authorities. The second is to develop an econometric model using panel data stratified by population size to measure indebtedness in Spanish municipalities. These measures enable us to formulate a series of hypotheses to explain municipal borrowing practices, which are then tested empirically. The evidence thus obtained appears to support the effectiveness of institutional borrowing restrictions to introduce some financial discipline in the borrowing policies adopted by local governments in Spain. Copyright Springer Science+Business Media, LLC 2007

Suggested Citation

  • Fermín Cabasés & Pedro Pascual & Jaime Vallés, 2007. "The effectiveness of institutional borrowing restrictions: Empirical evidence from Spanish municipalities," Public Choice, Springer, vol. 131(3), pages 293-313, June.
  • Handle: RePEc:kap:pubcho:v:131:y:2007:i:3:p:293-313
    DOI: 10.1007/s11127-006-9116-y
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Felix Rösel, 2017. "The Political Economy of Fiscal Supervision and Budget Deficits: Evidence from Germany," Fiscal Studies, Institute for Fiscal Studies, vol. 38, pages 641-666, December.
    2. Jorge Martinez-Vazquez & Violeta Vulovic, 2017. "How well do subnational borrowing regulations work?," Chapters,in: Central and Local Government Relations in Asia, chapter 5, pages 161-220 Edward Elgar Publishing.
    3. Eichler, Stefan & Hofmann, Michael, 2013. "Sovereign default risk and decentralization: Evidence for emerging markets," European Journal of Political Economy, Elsevier, vol. 32(C), pages 113-134.
    4. Leonardo Letelier S., 2011. "Theory and evidence of municipal borrowing in Chile," Public Choice, Springer, vol. 146(3), pages 395-411, March.
    5. Nuno Ribeiro & Susana Jorge & Mercedes Cervera, 2013. "Estudo do Endividamento da Administração Local Portuguesa: Evidência Empírica USando Modelos de Análise de Dados em Painel," Notas Económicas, Faculty of Economics, University of Coimbra, issue 38, pages 46-67, December.
    6. Céline Du Boys & Emanuele Padovani, 2016. "Local Reactions To The Financial Crisis: What Influence Of National Context Vs Individual Strategies?," Post-Print hal-01470232, HAL.
    7. repec:eee:spacre:v:16:y:2013:i:2:p:83-93 is not listed on IDEAS
    8. Chortareas, Georgios & Logothetis, Vasileios & Papandreou, Andreas A., 2016. "Political budget cycles and reelection prospects in Greece's municipalities," European Journal of Political Economy, Elsevier, vol. 43(C), pages 1-13.
    9. Maria Teresa Balaguer-Coll & Diego Prior & Emili Tortosa-Ausina, 2013. "On the determinants of local government debt: Does one size fit all?," Working Papers 2013/16, Economics Department, Universitat Jaume I, Castellón (Spain).

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