Cooperative Lending and Municipal Finance in Sweden
42 Pages Posted: 6 Mar 2017 Last revised: 10 Mar 2018
Date Written: March 7, 2017
This paper studies a specialized institution in Swedish municipal credit markets, known as a municipal credit agency. It is fully owned by its member municipalities and gives them access to long-term credit by raising funds in international bond markets. I document that gaining access to the agency’s credit facility decreases municipal borrowing costs in comparison to commercial bank loans. Built in the agency’s lending terms, I find support of a coinsurance mechanism across municipalities. Nevertheless, the net gains of improved credit access must dominate since almost all Swedish municipalities voluntarily joined by now. Finally, I could not detect evidence that a municipality’s participation in such a municipal credit agency adversely affects its fiscal discipline.
Keywords: municipal borrowing costs, municipal credit agency, local government funding agency
JEL Classification: H74, G12, G21
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