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

Bethlendi, András; Lentner, Csaba; Nagy, László

doi:10.1108/arj-04-2020-0076

Cited by 7 publications

(7 citation statements)

References 28 publications

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“…Decentralization processes in many emerging market economies during the past 20 years have strengthened the fiscal capacities of local governments. Sub-sovereign entities now have better access to sophisticated and diversified debt markets to finance infrastructure and public investment projects (Kehew et al, 2005;Bethlendi et al, 2020). Bonds issued by sub-sovereign entities compete with traditional bank loans to finance local governments' infrastructure.…”

Section: Economic Growth and Public Debtmentioning

confidence: 99%

“…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. The literature is long and unconvincing as to the effectiveness of the fiscal policy on growth (Horne, 1991; Blanchard, 1990;Paunovic, 2005; Talvi and Végh, 2000; Mendoza and Oviedo 2004).…”

Section: Introductionmentioning

confidence: 99%

“…Bailing out mechanisms include soft taxation, ad hoc subsidies and soft bank credits. Bethlendi et al (2020) suggest controlling the phenomenon of soft budgeting by reducing the amount of debt and by reducing expectations of bailing out, and reinforcing market discipline through tight budget constraints.…”

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: Economic Growth and Public Debtmentioning

confidence: 99%

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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“…The elementary source of tax revenue especially of the commune budgets are taxes and local fees. They differ from autonomous taxes as they are introduced by law in a uniform manner in the territory of the whole state and not by resolutions of decisionmaking authorities of a local government unit (Bethlendi et al, 2020). Given the fact that they were given as a source of income to a local government, local authorities obtain a determined tax control from the legislator.…”

Section: Sources Of Incomes Of a Local Governmentmentioning

confidence: 99%

Role of EU Funds in Financing the Activity of a Local Government in Poland from 2011 to 2020

Surówka¹

2021

ERSJ

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Findings: Based on the results of empirical research, the article shows that one of the sources of financing a developmental activity of a local government are EU funds. Poland benefitted from these sources even before the pre-accession period, but the wide access to EU money occurred after 2004 when Poland joined the European Union. Then, it was possible to reach EU funds at the much larger scale to finance and co-finance programmes and projects aiming at the reduction of disparities between individual states and regions of the European Union. Practical Implications: Poland's accession into the European Union enabled the local government units to obtain financial resources for the developmental activity. The LGU obtained access to non-repayable sources of financing the EU programmes and projects. However, obtaining these resources requires incurring own expenditures i.e., co-financing the EU projects. In the meantime, the surpluses of the current incomes over the current expenditures are not able to secure the own contribution of the LGU. Thus, the local government generally has two options; it should either resign from applying for the EU funds or secure the contribution with their own external financial sources i.e., credits, loans, or issuance of securities. The latter solution relates to indebtedness of the local government. Originality/Value: Considering that the inflow of the funds from the budget of the European Union is an extremely important and cheap source of financing development (which is likely to be limited for Poland in next perspectives), it seems that systematic targeted subsidies for investment should be planned in the state budget or low-interest loans for investments, for the LGU, securing them their own contribution.

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“…The problems of applying "soft" and "hard" budget restrictions were discussed in articles by Chulkov D. [57], Hopland A. O. [58], Bethlendi A., Lentner C., and Nagy L. [59]. In the unitary Scandinavian countries, the concept of "administrative federalism" is used [60], in which a decentralized government is created from the center, and local authorities form an integral part of the public sector and are agents of this center.…”

Section: Research Areas On the Concept Of Tight Budget Constraintsmentioning

confidence: 99%

Fuzzy Stochastic Automation Model for Decision Support in the Process Inter-Budgetary Regulation

Yakovenko

2020

Mathematics

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The purpose of this article is to study the theoretical foundations of the concept of fiscal decentralization, as the main path of self-development of the national economy of any country, and to develop mathematical tools that support decision-making in the aspect of “hard” budget constraints. The study of the problems of fiscal policy formation in foreign countries presented in modern scientific literature has revealed that the degree of application of the concepts of “soft” and “hard” budget restrictions is an actual topic in the theory of fiscal federalism. It has been substantiated that decision-making within the framework of “soft” budget constraints (financial assistance) leads to low tax autonomy of territories and limited liability of regional and municipal authorities for the results of their financial policy. As a research hypothesis, we put forward the thesis that it is necessary to create conditions for encouraging subnational authorities to support the territorial economy by granting them the possibility to use part of the taxes collected in the respective territories. The implementation of this thesis has given rise to the problem of quantifying decisions made regarding the establishment of standards for the distribution of tax revenues between budgets of different levels of the hierarchy of the country’s budget system. In terms of solving this problem, the author has constructed mathematical models based on the use of synthesis of mathematical apparatus of the theory of stochastic automata, fuzzy algebra, and simulation. In terms of solving this problem, the author proposed the use of mathematical modeling methods. The article presents the results of constructing economic and mathematical models to support decision-making in the vertical distribution of tax revenues between budgets. The models include stochastic automata, as mathematical abstractions, describing the expedient behavior of an economic agent when choosing management alternatives for territories of different levels of economic development. The transition functions of automaton models are formally described on the basis of the synthesis of mathematical apparatus of the theories of stochastic automata operating in random environments and fuzzy sets. The expediency property of the behavior of automaton models is justified by proving the corresponding theorems. The random environment in which stochastic automata are immersed is formed by a simulation model. The article demonstrates the results of experiments carried out on models, as well as a conceptual scheme of interaction between the automaton and simulation models.

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

Cited by 7 publications

References 28 publications

Regional Growth, Debt Thresholds and Subnational Sustainability

Regional Growth, Debt Thresholds and Subnational Sustainability

Role of EU Funds in Financing the Activity of a Local Government in Poland from 2011 to 2020

Fuzzy Stochastic Automation Model for Decision Support in the Process Inter-Budgetary Regulation

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