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

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Listed:
  • Alexander Plekhanov
  • Raju J 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.

Suggested Citation

  • Alexander Plekhanov & Raju J Singh, 2005. "How Should Subnational Government Borrowing Be Regulated? Some Cross-Country Empirical Evidence," IMF Working Papers 05/54, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:05/54
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    References listed on IDEAS

    as
    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. Zareh Asatryan & Lars Feld & Benny Geys, 2015. "Partial fiscal decentralization and sub-national government fiscal discipline: empirical evidence from OECD countries," Public Choice, Springer, vol. 163(3), pages 307-320, June.
    2. Yinqiu Lu & Tao Sun, 2013. "Local Government Financing Platforms in China; A Fortune or Misfortune?," IMF Working Papers 13/243, International Monetary Fund.
    3. Sebastian Galiani & Iván Torre & Gustavo Torrens, 2016. "Fiscal Federalism and Legislative Malapportionment: Causal Evidence from Independent but Related Natural Experiments," Economics and Politics, Wiley Blackwell, vol. 28(1), pages 133-159, March.
    4. Sharma, Chanchal Kumar, 2010. "Beyond Gaps and Imbalances: Re-Structuring the Debate on Intergovernmental Fiscal Relations," MPRA Paper 32145, University Library of Munich, Germany.
    5. 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.
    6. Luc Eyraud & Lusine Lusinyan, 2011. "Decentralizing Spending More Than Revenue; Does it Hurt Fiscal Performance?," IMF Working Papers 11/226, International Monetary Fund.
    7. Grażyna Bukowska & Joanna Siwińska-Gorzelak, 2016. "Can fiscal decentralisation curb fiscal imbalances?," Working Papers 2016-35, Faculty of Economic Sciences, University of Warsaw.
    8. Reingewertz, Yaniv, 2014. "Fiscal Decentralization - a Survey of the Empirical Literature," MPRA Paper 59889, University Library of Munich, Germany.
    9. Thushyanthan Baskaran, 2010. "On the link between fiscal decentralization and public debt in OECD countries," Public Choice, Springer, vol. 145(3), pages 351-378, December.
    10. Thushyanthan Baskaran, 2009. "Did the Maastricht treaty matter for macroeconomic performance? A difference-in-difference investigation," Kyklos, Wiley Blackwell, vol. 62(3), pages 331-358, August.
    11. Leonardo Letelier S., 2011. "Theory and evidence of municipal borrowing in Chile," Public Choice, Springer, vol. 146(3), pages 395-411, March.
    12. Peter Claeys & Raúl Ramos & Jordi Suriñach, 2008. "Fiscal sustainability across government tiers," International Economics and Economic Policy, Springer, vol. 5(1), pages 139-163, July.
    13. repec:rom:rampas:v:2015:y:2015:i:25:p:6-26 is not listed on IDEAS
    14. 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.
    15. 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.
    16. Ananya Kotia & Victor Duarte Lledo, 2016. "Do Subnational Fiscal Rules Foster Fiscal Discipline? New Empirical Evidence from Europe," IMF Working Papers 16/84, International Monetary Fund.
    17. Baskaran, Thushyanthan, 2009. "Did the Maastricht treaty matter for macroeconomic performance?," MPRA Paper 30106, University Library of Munich, Germany.
    18. 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.
    19. Sharma, Chanchal Kumar, 2007. "Rescuing the concept of vertical fiscal imbalance," MPRA Paper 39343, University Library of Munich, Germany, revised 2010.
    20. Van Hecke, Annelore, 2013. "Vertical debt spillovers in EMU countries," Journal of International Money and Finance, Elsevier, vol. 37(C), pages 468-492.
    21. Heiko T. Burret & Lars P. Feld, 2016. "Effects of Fiscal Rules - 85 Years' Experience in Switzerland," CESifo Working Paper Series 6063, CESifo Group Munich.
    22. Miral, Romulo Jr. E.M., 2017. "Federalism: Prospects for the Philippines," Discussion Papers DP 2017-29, Philippine Institute for Development Studies.
    23. 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.

    More about this item

    Keywords

    Debt; Fiscal federalism; local government; budget deficit; fiscal discipline; subnational governments; fiscal imbalances; vertical fiscal imbalances; fiscal balances; fiscal balance; State and Local Borrowing;

    JEL classification:

    • H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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