The Evolving Role of Subnational Borrowing in Financing Decentralized Government

• In Event: Foundations for Sustainable Federalism In Developing Economies

Abstract

Abstract. Author Timothy J. Goodspeed, City University of New York. Should subnational borrowing have a role in financing fiscal decentralization? Subnational debt received relatively little attention in the classic discussion of federalism by Oates (1972) although he indicates some ways in which subnational borrowing is sensible. Basic infrastructure is an important need in decentralization efforts and finding ways to fund it is a challenge. I discuss what role state and local borrowing can play in funding capital projects for developing as well as developed countries, as well as its role in macroeconomic stabilization. I also summarize recent discussions that center on the problems associated with subnational borrowing and potential solutions. What institutions, rules of the game, or rules of behavior are needed for successful subnational borrowing? Are there alternatives to subnational borrowing that can work better? I end by discussing the changing capital needs of subnational governments and emerging issues and practices.

Author

• Timothy Goodspeed, Hunter College