How Should Subnational Government Borrowing Be Regulated? Some Cross-Country Empirical Evidence
IMF Working Papers, March 1, 2005
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- How Should Subnational Government Borrowing Be Regulated? Some Cross-Country Empirical Evidence
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Bibliographic details
- Authors: Alexander Plekhanov, Raju J Singh
- Published: March 1, 2005
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451860733.001
Summary and main findings
- 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,
- the quality of fiscal reporting.
Methodology and scope
- Sample: 44 countries 1982-2000.
- Empirical approach: panel data analysis.
- Objective: determine the most effective borrowing constraints for containing local fiscal deficits.
Policy implications and considerations
- No one-size-fits-all regulatory arrangement for subnational borrowing.
- Choice of borrowing constraints should account for:
- the degree of vertical fiscal imbalance,
- whether there is a bailout precedent (which can affect incentives and market discipline),
- the quality of fiscal reporting (which affects transparency and enforcement).