The French Regions’ Borrowing Behaviours: How Heterogeneous are They?

26 Pages Posted: 5 Aug 2010

See all articles by Philippe Froute

Philippe Froute

Banque de France

Christophe Schalck

Banque de France

Gilles Dufrénot

GREQAM and Aix-Marseille School of Economics

Date Written: July 1, 2010

Abstract

This paper provides empirical evidence of the heterogeneous borrowing behaviours of French regions, despite a common accountability constraint that forces them to balance their budget and to borrow only to finance investment expenditure (golden rule). To this end, we use a quantile regression analysis covering the period from 1999 to 2007. The heterogeneity is very pronounced when the regions face a negative shock on debt, for instance a tightening of financial conditions. We explain our findings as a consequence of the fact that the Golden rule can be thought of as a “soft” rule if some local administrations believe that a financial rescue from the central government is automatic (as the regions receive transfers from the later). In this case, some regions find it advantageous to consider borrowing as an adjustment variable when taking their budgetary decisions.

Keywords: Regional Borrowing, Quantile Regressions, Golden Rule

JEL Classification: H74, E62, K34, R5

Suggested Citation

Froute, Philippe and Schalck, Christophe and Dufrénot, Gilles, The French Regions’ Borrowing Behaviours: How Heterogeneous are They? (July 1, 2010). Banque de France Working Paper No. 289, Available at SSRN: https://ssrn.com/abstract=1653878 or http://dx.doi.org/10.2139/ssrn.1653878

Philippe Froute

Banque de France ( email )

Paris
France

Christophe Schalck

Banque de France ( email )

Paris
France

Gilles Dufrénot (Contact Author)

GREQAM and Aix-Marseille School of Economics ( email )

Centre de la vieille Charité
2 rue de la Charité
13002 Marseille, 13236
France

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