France's Subnational Insolvency Framework
In Until Debt Do Us Part: Subnational Debt, Insolvency and Markets O. Canuto and L. Liu (Washington, DC, The World Bank, 2013)
40 Pages Posted: 13 Oct 2014
Date Written: April 8, 2013
During 1982–83 and 2003–04, two waves of decentralization in France devolved more powers to the three levels of subnational governments (SNGs): the municipalities, the departments, and the regions. This new institutional framework has enabled SNGs to enjoy a greater degree of autonomous expenditures, to raise their own taxes, and to borrow from financial markets, within ex-ante rules established by the central government. However, SNGs are subject to ex-post controls by the Prefect and the Regional Chambers of Accounts, and to on-going controls by the Public Accountants.
The French system, which combines decentralized responsibilities and fiscal decisions with fiscal monitoring by the central government, offers valuable experience for countries undergoing decentralization. State supervision has resulted in the avoidance of major SNG defaults — although several debt restructurings occurred in recent decades, which partly explains the high credit ratings — “AA,” on average — assigned by rating agencies. Nonetheless, the lack of a clear, established legal structure for priority payments creates uncertainties. Off-budget entities, such as state-owned enterprises, pose contingent fiscal risks, a common challenge across countries.
Keywords: subnational insolvency; subnational bankruptcy; France; defaults; public accountants
JEL Classification: P43
Suggested Citation: Suggested Citation