Saturday, March 15, 2014
Congressional B (Omni Shoreham)
In the ongoing debates over the European debt crisis, stated public debt figures commonly refer to consolidated general government debt. But policy advisors should note that national debt is partially entered on sub-central government levels, meaning these jurisdictions have the discretion to the conditions, purpose, and with whom they issue new government debt. This so-called debt decentralization is closely related to sub-national autonomy in a growing number of European countries. Motivated by this interest in public finance, and the increasing practice in the comparison of vertical government structures, the paper provides an empirical and institutional analysis of debt decentralization in EU countries for the period of 1991-2011. The study primarily illustrates the different degrees of decentralized public debt and examines if there is an observable decentralization trend. In answering the question of how much freedom sub-central jurisdictions have over their debt and its issuance, important conclusions for the design of recovery efforts can also be drawn. Building upon the existing literature of fiscal federalism, the paper further scrutinizes the general determinants of cross-country differences in the degree of debt decentralization by carrying out a cross-sectional time-series regression analysis that includes the effect of qualitative indicators that describe political decision-making processes, as well as quantitative factors such as revenue and expenditure autonomy of sub-central governments. In this matter, the present work extends previous analyses of public sector decentralization in order to focus on authorization and regulation on purpose, amount and structure of borrowing of sub-central jurisdictions.
