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Sub-national Finances and Fiscal Consolidation: Walking on Thin Ice

Author

Listed:
  • Camila Vammalle

    (OECD)

  • Claudia Hulbert

    (OECD)

Abstract

Recent crises and national consolidation packages affected sub-national finances. In many OECD countries, central governments introduced reductions in transfers to sub-national governments, and established expenditure and/or deficit objectives to be met by local or regional authorities. Such measures have reduced the financial room of sub-national governments for implementing key public services or investments. In parallel, borrowing conditions deteriorated for many sub-national governments, as banks and financial markets became increasingly reluctant to lend. Since late 2008, financial markets started discriminating between high- and low-quality SNG bonds, and yields reached record-high levels for sub-national governments perceived as less creditworthy. Facing degraded finances, upward pressure on expenditures and deteriorated borrowing conditions, many sub-national governments have used public investment as an adjustment variable to reduce their budget deficits and preserve their spending on welfare, health or education. However, such policies may hinder long-term growth perspectives.

Suggested Citation

  • Camila Vammalle & Claudia Hulbert, 2013. "Sub-national Finances and Fiscal Consolidation: Walking on Thin Ice," OECD Regional Development Working Papers 2013/2, OECD Publishing.
  • Handle: RePEc:oec:govaab:2013/2-en
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    File URL: http://dx.doi.org/10.1787/5k49m8cqkcf3-en
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    Cited by:

    1. Paolo Chiades & Luciano Greco & Vanni Mengotto & Luigi Moretti & Paola Valbonesi, 2016. "Intergovernmental transfers and expenditure arrears," Working Papers hal-01442684, HAL.

    More about this item

    Keywords

    bailouts; fiscal stress; public debt; sub-national government;

    JEL classification:

    • H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management
    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
    • H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts

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