Fiscal Equalization Schemes and Subcentral Government Borrowing
28 Pages Posted: 28 Oct 2016 Last revised: 4 Jan 2017
Date Written: September 16, 2016
Examining the cases of Canada, Germany, and Spain, the role played by fiscal equalization schemes in determining subnational borrowing was analyzed, and the link between regional governments’ primary fiscal balances and gross domestic product per capita was tested econometrically. The study results show that either poor or rich regions can display higher regional public borrowing on average, and these results can be linked to the institutional design of regional equalization systems in place. Particular elements, such as tax efforts and fiscal capacities, also play relevant roles in this regard. Reforms of these schemes can therefore prove instrumental in reducing regional heterogeneity in public borrowing.
Keywords: Fiscal Equalization Schemes, Government Borrowing, Public Borrowing, Subnational Borrowing, Fiscal Capacity, Canada, Germany, Spain
JEL Classification: R5, H7
Suggested Citation: Suggested Citation