commission on fiscal imbalance 合集

Decentralization in the transition economies

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Unformatted text preview: providing guarantees to their borrowing. In these circumstances, the incentive structure is set for excessive borrowing of subnational governments, which would ultimately lead subnational governments to default on loans. FIGURE 16 REGULATORY FRAMEWORK FOR SUBNATIONAL BORROWING IN TRANSITION COUNTRIES Country Are local governments allowed to borrow? Are the purpose for which money can be borrowed limited? Is there regulation for municipal bankruptcy? Albania Yes Armenia Yes No Yes Bulgaria Yes Yes Yes Yes No No Yes Yes Croatia Yes Yes No Yes Yes Yes Czech Rep. Yes No No Yes No No No Estonia Hungary Yes Yes Yes Yes Yes No Yes Yes Yes Yes No Yes Kazakhstan Yes No Yes Yes Yes No Kyrgyz Rep. Yes Latvia Yes Yes Yes Yes Lithuania Yes Yes Yes Yes No Poland Yes Yes Yes Yes No At Home Abroad Is there a regulatory framework for borrowing? Are there any limitations on borrowing? Yes No Yes No No Romania Yes Yes Yes Yes Russia Yes No Yes Yes Yes No No Slovakia Yes Yes No No No No Slovenia Yes Yes Yes Yes No Ukraine Yes Yes No Yes Source: Deborah Wetzel, 2001. “Decentralization in the Transition Economies: Challenges and the Road Ahead” PREM, World Bank. No A common proposal to deal with subnational governments’ default on loans is to institute limits on the borrowing ability of subnational governments (Ter-Minassian and Craig, 1997). There are two reasons limiting subnational governments’ borrowing ability (Bird, 2000). First, if there is no constraint on subnational governments borrowing, the propensity to behave in a fiscally irresponsible way is very high. In the absence of the checks and balances of the subnational debt issuance mechanism, subnational governments may increase their current expenditures well above their capacity to finance them and close the gap through borrowing, especially in countries where general inability of central governments to impose hard-budget constraints exist. The second reason for imposing restrictions on subnational borrowing is macroeconomic stabilization. Since central government has the responsibility for stabilization policies, it is important that it has full control over public debt. 6. CONCLUDING REMARKS This module has stressed that fiscal decentralization is a multifaceted complex issue. Legal and constitutional framework, as well as institutional structure of the public administration system in each country has a bearing on the outcome fiscal decentralization application. The success of fiscal decentralization reforms is inextricably tied to the 170 Commission on Fiscal Imbalance question of "sorting-out" public sector responsibilities among different levels of government. There is no prescribed set of rules for "sorting-out" that apply to all countries. Although specific aspects of fiscal decentralization process can be worked out in the context of each individual country, the common components of designing a decentralized system of intergovernmental fiscal relations in all countries are assignment...
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