 Effect of a transfer shock on subnational debt: Micro evidence from MexicoJournal of Public Economics, 2024, vol. 239, issue C Abstract: This paper examines how a shock to the distribution of federal transfers to Mexican municipalities affects their demand for long-term loans aimed at funding productive investments. Transfers are municipalities’ main source of debt payment and collateral. Using granular supervisory data, I find a positive effect on municipalities’ loan volume, normalized by the country’s total municipal loans, driven by obligations with private lenders. However, I find little or no average effect on take-up — despite many governments being unbanked —, repayment, or volume at the intensive margin. Governments with lower payment capacity and other preexisting debt are more sensitive to the shock. In particular, those with short-term debt are more likely to start borrowing from private lenders, while those with bonds turn to the development bank. The additional revenue mostly funds current rather than capital expenditures. These findings highlight that the policy goal of deepening subnational credit markets in developing countries must also address weaknesses in local investment capacities. Keywords: Municipal loans; Bank lending; Federal transfers; Loan collateral; Development bank (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:239:y:2024:i:c:s0047272724001877 DOI: 10.1016/j.jpubeco.2024.105251 Access Statistics for this article Journal of Public Economics is currently edited by R. Boadway and J. Poterba More articles in Journal of Public Economics from Elsevier |
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