30 research outputs found

    'Market Discipline', Lending Ceilings and Subnational Finance

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    The 'market discipline' approach to subnational finance requires that moral hazard derived from the possibility of a central government bailout be made insignificantly small. Therefore, governments interested in following this approach and willing to abide by its rules should start by creating the conditions for a default and its resolution to be possible. This article discusses the use of lending ceilings as an instrument to allow the default, without dragging in the central government. Copyright 2005 Blackwell Publishing Ltd..
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