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State Public Debt Laws and Fiscal Performance

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  • César Velázquez

    (Departamento de Economía, Universidad Iberoamericana)

Abstract

Institutions play a fundamental role on the fiscal performance of governments. In the literature of federalism, fiscal institutions are one possible way to control subnational debt that may cause problems in the financial sector and affect a country's macroeconomic stability. This is particular relevant in developing countries where problems of soft-budget constraints at the regional and local level are more common and reliance on market discipline is harder. This paper studies the impact of state public debt laws on state fiscal performance in the case of Mexico. Using data from a panel of the 31 Mexican states for the period 1993-2002 the analysis finds that there is a positive impact of the existence of debt laws, but once we take care of potential problems of endogeneity, the effect disappears.

Suggested Citation

  • César Velázquez, 2006. "State Public Debt Laws and Fiscal Performance," Working Papers 0106, Universidad Iberoamericana, Department of Economics.
    • Handle: RePEc:uic:wpaper:0106
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    References listed on IDEAS

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    1. Alt, James E. & Lowry, Robert C., 1994. "Divided Government, Fiscal Institutions, and Budget Deficits: Evidence from the States," American Political Science Review, Cambridge University Press, vol. 88(4), pages 811-828, December.
    2. Poterba, James M, 1994. "State Responses to Fiscal Crises: The Effects of Budgetary Institutions and Politics," Journal of Political Economy, University of Chicago Press, vol. 102(4), pages 799-821, August.
    3. Swaroop, Vinaya & Jha, Shikha & Sunil Rajkumar, Andrew, 2000. "Fiscal effects of foreign aid in a federal system of governance: The case of India," Journal of Public Economics, Elsevier, vol. 77(3), pages 307-330, September.
    4. von Hagen, Jurgen, 1991. "A note on the empirical effectiveness of formal fiscal restraints," Journal of Public Economics, Elsevier, vol. 44(2), pages 199-210, March.
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