State-Owned Banks and Fiscal Discipline
IMF Working Papers, October 3, 2013
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Bibliographic details
- Authors: Jesus R Gonzalez-Garcia, Francesco Grigoli
- Published: October 3, 2013
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484392805.001
Summary
- State-owned banks may help to soften the financing constraints of public sector entities and consequently become a factor that hampers fiscal discipline.
- Using a panel dataset, the authors find that a larger presence of state-owned banks in the banking system is associated with:
- more credit to the public sector,
- larger fiscal deficits,
- higher public debt ratios,
- crowding out of credit to the private sector.
- The results suggest that the lending practices of state-owned banks should be carefully assessed in any strategy to pursue fiscal discipline.
Main Findings (empirical)
- Larger presence of state-owned banks → more credit to the public sector.
- Larger presence of state-owned banks → larger fiscal deficits.
- Larger presence of state-owned banks → higher public debt ratios.
- Larger presence of state-owned banks → crowding out of credit to the private sector.
Policy Implications and Recommendations
- Assess the lending practices of state-owned banks as part of strategies to pursue fiscal discipline.
- Consider reforms or oversight measures targeting state-owned bank lending to limit financing that may weaken fiscal discipline (implied by empirical associations above).