‘MARKET DISCIPLINE’, LENDING CEILINGS AND SUBNATIONAL FINANCE

Elio Londero ()

MPRA Paper from University Library of Munich, Germany

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.

Keywords: lending ceilings; fiscal institutions; subnational finance; banking regulations; moral hazard; market discipline; bailout (search for similar items in EconPapers)
JEL-codes: G18 H74 (search for similar items in EconPapers)
Date: 2005-11
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Published in KYKLOS 4.58(2005): pp. 575-590

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Related works:
Journal Article: ‘Market Discipline’, Lending Ceilings and Subnational Finance (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:100411

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