Hardening Budget Constraints: A Cross-National Study of Fiscal Sustainability and Subnational Debt

Smith, Heidi Jane Marie; Park, Sanghee; Liu, Liguang

doi:10.1080/01900692.2019.1575666

Cited by 16 publications

(10 citation statements)

References 32 publications

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“…Our results suggest a balance between good tax collection to meet debt expenses while promoting growth. Fiscal authorities and local governments should ensure this is the case: i.e., public finances can meet capital and interest payments of local debts while promoting growth (Smith et al, 2019). Development and commercial bank debt potentially encourage growth more than other instruments.…”

Section: Discussionmentioning

confidence: 99%

“…Some authors have noted that the financial pressure of these crises of 2009 and from 2020 with the pandemic has dramatically affected the credit strength of local governments (Herrera, Brandaza and Ortiz, 2010). Other authors have looked for evidence on whether fiscal discipline has contributed to maintaining subnational finances healthy or impacted the build-up of debt in the long term (Smith, et al 2019;Sönmez, 2013). While assessing the long-term financial sustainability of local governments in highly centrally regulated countries, Bethlendi et al (2020) noted the consequences of soft budget problems regarding debt sustainability.…”

Section: Introductionmentioning

confidence: 99%

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Regional Growth, Debt Thresholds and Subnational Sustainability

Mendoza-Velázquez

Smith

Mendoza-Martínez

2023

REMEF

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Aim: To examine the nexus between subnational debt sustainability and regional economic growth. Method: The study employs dynamic panels by Arellano-Bond and the kink model to estimate debt thresholds by Seo and Shin. Results: The study finds a positive association between subnational debt and regional GDP growth, which differs by type of debt. The fiscal intergovernmental architecture of federal system in Mexico results in lower debt thresholds compared to national thresholds. Recommendations: Fiscal, regulatory and normative rules on bank debt should aim to provide the right incentives to encourage regional growth. Limitations: Results from a small sample are a first approximation to the regional debt-growth nexus in Mexico. The lack of updated and consistent data for longer horizons on subnational public finance limits the generalization of the findings. Originality: The study helps to understand the effect of increasing debt on regional GDP growth in centralized fiscal systems and the differential effect by type of financing. Conclusions: Highly centrally regulated fiscal models with limited revenue autonomy could engender soft budget problems and create financial management inefficiencies.

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Section: Discussionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Regional Growth, Debt Thresholds and Subnational Sustainability

Mendoza-Velázquez

Smith

Mendoza-Martínez

2023

REMEF

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“…Congruently, the enactment of the FCA in the year of 1998 decentralized federal resources to local governments while earmarking expenditure to prioritize the ExA subset. An arrangement that has brought further complexity into the local policy process, however conveniently uncontested by the municipal governments as it granted them access to unprecedented levels of resources, while avoiding the political cost of increasing their own sources of revenues (Smith et al, 2019).…”

Section: Discussionmentioning

confidence: 99%

Punctuated equilibrium in multilevel contexts: How federal and state level forces feedback into shaping the local policy agenda in Mexico

Meza¹

2021

Policy Studies Journal

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The article uses the punctuated equilibrium theory to explain changes in the local policy agenda of municipal governments. It focuses on feedback (negative and positive) as a key concept that associates intergovernmental institutions in a federalist system of governance and the budgetary punctuations and change in the municipal policy agenda. I analyze a 17-year period of decentralization process along a generalized structural equation multinomial model. Findings show that decentralized resources, from state and federal governments, affect the municipal's local policy agenda. Such effects are conditional to an overall institutional setting, thus, providing additional insights into the contingency of institutional friction shaping feedback and policy change.

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“…The following tools can be used to manage the phenomenon of soft budgeting: the abolishment of government instruments of softening (such as soft taxation, ad hoc subsidies, soft bank credits, allowing supplier credits above a certain level) and the reduction of expectations for a bailout and the reinforcement of market discipline (Heidi et al, 2019). Based on practical experience, relying solely on market discipline, which is attractive in theory, would fail in many cases to produce satisfactory results in this area of public finances (Ter-Minassian and Craig, 1997).…”

Section: Literature Reviewmentioning

confidence: 99%

The issue of sustainability in a highly centrally regulated fiscal model of local governments: an empirical study

Bethlendi

Lentner

Nagy

2020

ARJ

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Purpose This study aims to assess the sustainability of local governments in a highly centrally regulated fiscal model. Design/methodology/approach This paper uses a novel approach, a broad data set of almost 3,200 local governments and network methods. This paper analyses financial data from annual reports and other socio-economic sources using cluster analysis. Findings Even in this model, local governments show significant differences in terms of long-term sustainability. Investments do not compensate for the depreciation of tangible assets at a significant part of local governments. A specific type of soft budget constraint can be noticed. Heads of local governments do not “play” for subsequent ad hoc bailouts by the central government, but rather engage themselves in political competition for development subsidies. A further finding of this study is that shrinking populations itself does not explain the differences in local governments’ financial management. Research limitations/implications Further directions of research include the application of an extended approach to sustainability that gives an account of the availability and quality of local services, as well as aims to identify the qualitative social characteristics (success criteria) of the local government financial management. Practical implications The findings can be useful for policymakers, state audit offices, auditors, voters, users of public services and other stakeholders. Social implications The paper argues in favour of moving away from the financial balance in its narrow sense to a long-term and broader term of financial sustainability. Originality/value The findings provide new empirical evidence about the accounting-based measurement of financial sustainability in local governments.

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Hardening Budget Constraints: A Cross-National Study of Fiscal Sustainability and Subnational Debt

Cited by 16 publications

References 32 publications

Regional Growth, Debt Thresholds and Subnational Sustainability

Regional Growth, Debt Thresholds and Subnational Sustainability

Punctuated equilibrium in multilevel contexts: How federal and state level forces feedback into shaping the local policy agenda in Mexico

The issue of sustainability in a highly centrally regulated fiscal model of local governments: an empirical study

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