Fiscal decentralization policies and sub-national government debt in evolving federations

Teresa Garcia-Mila, Timothy Goodspeed () and Therese J. McGuire

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: As part of a process of democratization, many countries spanning Europe, Latin Amertica, Africa, and Asia are reorganizing their governments by devolving fiscal responsibility and authority to newly empowered regional and local governments. Although decentralization in each country proceeds differently, a common element tends to be an initially heavy reliance on central government grants to fund regional spending. We develop a theoretical model of regional borrowing decisions in which the incentives for regional borrowing depend crucially on how the regions expect the federal system of finance to evolve. We examine the implications of the model using data on Spanish regions for the period 1984-1995 and find evidence that regions may be borrowing inefficiently in response to incentives imbedded in the Spanish system of fiscal decentralization.

Keywords: Fiscal decentralization; borrowing incentives (search for similar items in EconPapers)
JEL-codes: H3 H7 (search for similar items in EconPapers)
Date: 2001-07, Revised 2002-05
New Economics Papers: this item is included in nep-pub
References: Add references at CitEc
Citations: View citations in EconPapers (19)

Downloads: (external link)
https://econ-papers.upf.edu/papers/549.pdf Whole Paper (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:upf:upfgen:549

Access Statistics for this paper

More papers in Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra
Bibliographic data for series maintained by ( this e-mail address is bad, please contact ).