Laws for Fiscal Responsibility for Subnational Discipline : International Experience

Fiscal responsibility laws are institutions with which multiple governments in the same economy -- national and subnational --can commit to help avoid irresponsible fiscal behavior that could have short-term advantages to one of them but that would...

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Bibliographic Details
Main Authors:	Liu, Lili, Webb, Steven B.
Format:	Policy Research Working Paper
Language:	English
Published:	2012
Subjects:	ACCESS TO INFORMATION ACCOUNTABILITY ACCOUNTING ACCOUNTING POLICIES ACCOUNTING STANDARDS ACCRUAL ACCOUNTING ADMINISTRATIVE CONTROL AGENCY PROBLEMS AMORTIZATION ARREARS BAILOUT BAILOUTS BANK BAILOUTS BANK FINANCING BANK LOANS BANKING REGULATIONS BINDING CONSTRAINT BLOCK GRANTS BONDS BORROWER BORROWING COSTS BUDGET BALANCE BUDGET CONSTRAINT BUDGET CONSTRAINTS BUDGET DEFICIT BUDGET DEFICITS BUDGET PROCESS BUDGETING BUSINESS CYCLE CAPITAL GROWTH CAPITAL MARKETS CAPITAL REQUIREMENTS CENTRAL BANK CENTRAL BANKS CENTRAL GOVERNMENT COLLATERAL CONSOLIDATION CONSUMPTION EXPENDITURE CONTINGENT LIABILITIES CONVERTIBILITY PLAN COORDINATION FAILURES COUNTRY COMPARISONS CREDIBILITY CREDIT CONTRACT CREDIT MARKET CREDIT MARKETS CREDIT RATING CREDIT RATINGS CREDIT SYSTEM CREDITOR CREDITWORTHINESS CURRENT EXPENDITURES DEBT DEBT BURDEN DEBT CRISES DEBT DATA DEBT FINANCING DEBT MANAGEMENT DEBT MARKET DEBT OBLIGATIONS DEBT OUTSTANDING DEBT PAYMENTS DEBT RATIO DEBT REDUCTION DEBT RELIEF DEBT RESTRUCTURING DEBT RESTRUCTURING AGREEMENT DEBT RESTRUCTURING AGREEMENTS DEBT SERVICE DEBT STOCK DEBTOR DEBTS DECONCENTRATION DEFICITS DEVELOPING COUNTRIES DEVELOPING COUNTRY DEVOLUTION DOMESTIC BORROWING DOMESTIC CREDIT ENFORCEMENT MECHANISMS ENFORCEMENT POWER EXCHANGE RATE EXPENDITURE EXPENDITURES FEDERAL COUNTRIES FEDERAL DISTRICT FEDERALISM FINANCES FINANCIAL CRISIS FINANCIAL INSTITUTIONS FINANCIAL MANAGEMENT FINANCIAL MARKET FINANCIAL MARKETS FINANCIAL RISKS FINANCIAL STATEMENTS FINANCIAL SYSTEM FISCAL ADJUSTMENT FISCAL AUTONOMY FISCAL CONSTRAINTS FISCAL CRISIS FISCAL DECENTRALIZATION FISCAL DEFICIT FISCAL DEFICITS FISCAL DISCIPLINE FISCAL GAPS FISCAL INSTITUTIONS FISCAL LEGISLATION FISCAL POLICIES FISCAL POLICY FISCAL REFORM FISCAL SUSTAINABILITY FLOATING DEBT FOREIGN CURRENCY GOVERNMENT BOND GOVERNMENT BOND MARKET GOVERNMENT BORROWERS GOVERNMENT BORROWING GOVERNMENT DEBT GOVERNMENT FINANCE GOVERNMENT GUARANTEE GOVERNMENT INTERVENTION GOVERNORS HARD BUDGET CONSTRAINTS HOLDING INDEBTEDNESS INFLATION INFRASTRUCTURE DEVELOPMENT INSTRUMENT INTEREST COST INTEREST RATES INTERNATIONAL BANK INTERNATIONAL BORROWING INTERNATIONAL CREDIT INTERNATIONAL FINANCIAL CRISIS INTERNATIONAL INTEREST INTERNATIONAL RATING AGENCIES INVESTMENT SPENDING ISSUANCE LAWS LEGAL CONSTRAINTS LEGAL FRAMEWORK LEGAL FRAMEWORKS LEGISLATION LENDER LENDERS LENDING DECISIONS LEVEL OF GOVERNMENT LOAN LOAN GUARANTEES LOCAL CURRENCY LOCAL GOVERNMENT LOCAL GOVERNMENTS MACROECONOMIC ADJUSTMENT MACROECONOMIC CRISIS MACROECONOMIC ENVIRONMENT MACROECONOMIC INSTABILITY MACROECONOMIC STABILITY MACROECONOMIC VARIABLES MARKET DISCIPLINE MARKET PRICING MATURITY MAYORS MONETARY POLICIES MONETARY POLICY MORAL HAZARD MORAL HAZARDS MUNICIPAL FINANCE MUNICIPALITIES NATIONAL DEBT NATIONAL SECURITY NATIONAL TREASURY NET ASSETS NET DEBT OPERATING EXPENSES OPERATING REVENUE OPERATING SURPLUS PAYMENT OBLIGATIONS PENALTIES PENSIONS POLITICAL AUTONOMY PRINCIPAL-AGENT PROBLEM PRINCIPAL-AGENT PROBLEMS PRIVATE CREDITORS PRIVATE INVESTMENTS PROVINCES PROVINCIAL DEBTS PROVINCIAL FISCAL PUBLIC BANKS PUBLIC DEBT PUBLIC FINANCE PUBLIC FINANCE LAW PUBLIC FINANCES PUBLIC SECTOR DEFICIT PUBLIC SERVICES PUBLIC SPENDING REDEMPTION RENEGOTIATION RESERVE RESERVE BANK RESERVE BANK OF INDIA RETIREMENT RETURN REVENUE BASE REVENUE SHARING RISK PREMIUMS SAVINGS SOLVENCY SOVEREIGN DEBT SUB-NATIONAL BORROWERS SUBNATIONAL SUBNATIONAL DEBT SUBNATIONAL DEFICITS SUBNATIONAL FINANCE SUBNATIONAL FINANCES SUBNATIONAL GOVERNMENTS SUPERVISION OF BANKS SUPPLY OF CREDIT TAX TAX BASES TAX POLICY TAXATION TRANSPARENCY UNFUNDED MANDATES
Online Access:	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20110311132517 http://hdl.handle.net/10986/3354

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Summary:	Fiscal responsibility laws are institutions with which multiple governments in the same economy -- national and subnational --can commit to help avoid irresponsible fiscal behavior that could have short-term advantages to one of them but that would be collectively damaging. Coordination failures with subnational governments in the 1990s contributed to macroeconomic instability and led several countries to adopt fiscal responsibility laws as part of the remedy. The paper analyzes the characteristics and effects of fiscal responsibility laws in seven countries -- Argentina, Australia, Brazil, Canada, Colombia, India, and Peru. Fiscal responsibility laws are designed to address the short time horizons of policymakers, free riders among government units, and principal agent problems between the national and subnational governments. The paper describes how the laws differ in the specificity of quantitative targets, the strength of sanctions, the methods for increasing transparency, and the level of government passing the law. Evidence shows that fiscal responsibility laws can help coordinate and sustain commitments to fiscal prudence, but they are not a substitute for commitment and should not be viewed as ends in themselves. They can make a positive contribution by adding to the collection of other measures to shore up a coalition of states with the central government in support of fiscal prudence. Policymakers contemplating fiscal responsibility laws may benefit from the systematic review of international practice. One common trait of successful fiscal responsibility laws for subnational governments is the commitment of the central government to its own fiscal prudence, which is usually reinforced by the application of the law at the national as well as the subnational level.

Laws for Fiscal Responsibility for Subnational Discipline : International Experience

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