‘Market Discipline’, Lending Ceilings and Subnational Finance

Elio Londero ()

Kyklos, 2005, vol. 58, issue 4, 575-590

Abstract: The ‘market discipline’ approach to subnational finance requires that moral hazard derived from the possibility of a central government bailout be made insignificantly small. Therefore, governments interested in following this approach and willing to abide by its rules should start by creating the conditions for a default and its resolution to be possible. This article discusses the use of lending ceilings as an instrument to allow the default, without dragging in the central government.

Date: 2005
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https://doi.org/10.1111/j.0023-5962.2005.00303.x

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Working Paper: ‘MARKET DISCIPLINE’, LENDING CEILINGS AND SUBNATIONAL FINANCE (2005)
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