Subnational Finance Outside the United States: Recent Developments

Local government access to finance is a core issue in public finance. Although local authorities need long-term finance to fund infrastructure, over-borrowing may lead to defaults and local bailouts, a lack of accountability, and a waste of resources. John Petersen was a firm believer that local authorities should have access to financial markets on an equal footing with private firms, while recognizing the distinctions that flow from their taxing and governance powers. He added that cities need to have access to technical capacity and that subnational borrowing should be framed by a clear institutional framework. This paper reviews recent developments in subnational finance in countries other than the United States, highlighting the impact of the recent fiscal crisis on local governments’ spending and debt. It suggests that governments in emerging economies, where regulations were adopted during the late 1990s, may have had an easier time dealing with the financial crisis than governments in Europe and the United States.