Cooperative Lending and Municipal Finance in Sweden
42 Pages Posted: 6 Mar 2017 Last revised: 1 May 2017
Date Written: May 1, 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, addressing general worries about fiscal discipline in such a context, I could not detect evidence that a municipality’s participation in a municipal credit agency adversely affects its annual budgets.
Keywords: municipal borrowing costs, municipal credit agency, local government funding agency
JEL Classification: H74, G12, G21
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