Decentralizing Borrowing Powers
The note highlights the importance of sound intergovernmental fiscal relations, and proper regulation for successful sub-national borrowing, and illustrates the potential macroeconomic hazards of decentralizing borrowing powers, arguing that the im...
| Main Author: | |
|---|---|
| Format: | Brief |
| Language: | English |
| Published: |
World Bank, Washington, DC
2012
|
| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/1999/01/692850/decentralizing-borrowing-powers http://hdl.handle.net/10986/11501 |
| Summary: | The note highlights the importance of
sound intergovernmental fiscal relations, and proper
regulation for successful sub-national borrowing, and
illustrates the potential macroeconomic hazards of
decentralizing borrowing powers, arguing that the impact of
a possible moral hazard problem, namely, the access to
financial markets by sub-national governments, may generate
unplanned liabilities for central governments. Yet academia,
and country experiences do not suggest adverse links between
decentralized borrowing powers, and the central
government's ability to maintain fiscal discipline, and
macroeconomic stability. Rather the key seems to lie in the
design of fiscal decentralization, particularly the
regulatory framework under which borrowing powers are
decentralized. The note outlines the reasons why
sub-national governments require access to financial
markets: to finance capital spending, and foster political
accountability, which can be achieved through direct
borrowing by central government, through a public financial
intermediary, or, through direct borrowing. As per designing
the regulatory framework, the note suggests better
information systems, bankruptcy laws, and access to tax
bases, in addition to separate fiscal/financial systems, and
sound legislation to impose budget discipline, enabling
access to capital markets to complement fiscal powers
devolution to regional authorities. |
|---|