## State-Owned Banks and Fiscal Discipline

_IMF Working Papers, October 3, 2013_

## Source details

**Canonical URL:** [State-Owned Banks and Fiscal Discipline](https://www.imf.org/en/publications/wp/issues/2016/12/31/state-owned-banks-and-fiscal-discipline-40982)

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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

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### 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).

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/state-owned-banks-and-fiscal-discipline-40982_