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Passing the Buck? Central and Sub-national Governments in Times of Fiscal Stress

Author

Listed:
  • Rudiger Ahrend

    (OECD)

  • Marta Curto-Grau

    (University of Barcelona)

  • Camila Vammalle

    (OECD)

Abstract

The paper explores interrelations between the fiscal situation of sub-national and central governments, or – put differently – whether and how sub-national and central governments contribute to each other’s fiscal difficulties. The first part of the paper examines sub-national government policies that may negatively affect the fiscal situation of the central government. Based on a new cross-country data-set at the level of individual regions, it examines structural factors that increase the probability of sub-national entities accumulating amounts of debt that may ultimately turn out to be unsustainable. The underlying idea is to explore to what degree such debt levels could result from moral hazard-driven behaviour at the regional level. The second part of the paper examines whether and how national governments hand the burden of fiscal adjustment down to sub-national levels, mainly looking at examples from the wave of fiscal adjustments in the wake of the 2007-09 global financial crisis. Cette étude examine dans quelle mesure la situation budgétaire des gouvernements infra-nationaux et celle des gouvernements centraux sont liées – ou, exprimé différemment, comment les gouvernements infra-nationaux et centraux contribuent à leurs difficultés budgétaires réciproques. La première partie de l’étude analyse les politiques conduites par les gouvernements infra-nationaux pouvant affecter négativement la situation budgétaire du gouvernement central. Une analyse des facteurs structurels susceptibles d’accroître la probabilité d’accumulation de dette par les entités infra-nationales (et pouvant au final la rendre insoutenable) est alors conduite. Basée sur une nouvelle base de données au niveau regional pour six pays de l’OCDE, elle cherche à déterminer à quel point ces niveaux de dette sont susceptibles d’être influencés par des comportements d’aléa moral de la part des autorités régionales. La seconde partie de cette étude examine la manière dont les gouvernements centraux transfèrent le poids de l’ajustement budgétaire aux gouvernements infra-nationaux, en se concentrant sur des épisodes de consolidation budgétaire ayant suivi la crise financière internationale de 2007-2009.

Suggested Citation

  • Rudiger Ahrend & Marta Curto-Grau & Camila Vammalle, 2013. "Passing the Buck? Central and Sub-national Governments in Times of Fiscal Stress," OECD Regional Development Working Papers 2013/5, OECD Publishing.
  • Handle: RePEc:oec:govaab:2013/5-en
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    File URL: http://dx.doi.org/10.1787/5k49df1kr95l-en
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    Cited by:

    1. Na, Kyoung-Youn & Yoon, Chang-ho, 2015. "ICT development and productivity of transport infrastructure," 2015 Regional ITS Conference, Los Angeles 2015 146329, International Telecommunications Society (ITS).
    2. Sola, Sergio & Palomba, Geremia, 2016. "Sub-nationals' risk premia in fiscal federations: Fiscal performance and institutional design," Journal of International Money and Finance, Elsevier, vol. 63(C), pages 165-187.
    3. Na, Kyoung-Youn & Yoon, Chang-Ho, 2016. "ICT and Transport Infrastructure Development," 27th European Regional ITS Conference, Cambridge (UK) 2016 148692, International Telecommunications Society (ITS).

    More about this item

    Keywords

    bailouts; fiscal stress; gouvernements infra-nationaux; plan de sauvetage; public debt; stress budgétaire; 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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