State-Owned Banks and Fiscal Discipline

27 Pages Posted: 28 Oct 2013

See all articles by Jesus Gonzalez-Garcia

Jesus Gonzalez-Garcia

International Monetary Fund (IMF)

Francesco Grigoli

International Monetary Fund (IMF)

Date Written: October 2013

Abstract

State-owned banks may help to soften the financing constraints of public sector entities and consequently become a factor that hampers fiscal discipline. Using a panel dataset, we find that a larger presence of state-owned banks in the banking system is associated with more credit to the public sector, larger fiscal deficits, higher public debt ratios, and the crowding out of credit to the private sector. These results suggest that the lending practices of state-owned banks should be carefully assessed in any strategy to pursue fiscal discipline.

Keywords: Public enterprises, Banks, Fiscal policy, Banking systems, Credit, Private sector, Public sector, Soft budget constraint, state-owned banks, fiscal discipline

JEL Classification: G21, H60, H81

Suggested Citation

Gonzalez-Garcia, Jesus and Grigoli, Francesco, State-Owned Banks and Fiscal Discipline (October 2013). IMF Working Paper No. 13/206. Available at SSRN: https://ssrn.com/abstract=2346256

Jesus Gonzalez-Garcia (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Room: HQ2 10A-572
Washington, DC 20431
United States
(202) 6236310 (Phone)
(202) 6236159 (Fax)

Francesco Grigoli

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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