Until Debt Do Us Part—Subnational Debt, Insolvency, and Markets

With decentralization and urbanization, state and local debt and debt of quasi-public agencies have grown in importance. With debt comes the risk of insolvency. Subnational debt crises are reoccurring events in both developed and developing countries. Ultimately, restructuring debt and ensuring its sustainability confront moral hazard and fiscal incentives in a multilevel government system individual subnational governments might free-ride common resources, and public officials might shift the cost of excessive borrowing to future generations. This book brings together the reform experience of major emerging economies and developed countries. Written by leading practitioners and experts in public finance in the context of multilevel government systems, this book examines the interactive roles of markets, regulators, subnational borrowers, creditors, national governments, taxpayers, ex-ante rules, and ex-post insolvency systems in the quest for subnational fiscal discipline. This book offers fascinating insights into how such a quest intertwines with a country s historical, political, and economic context. The formal legal framework interacts with political reality to influence the dynamics of and incentives for reform. Often, the resolution of a subnational debt crisis unfolds in the context of macroeconomic stabilization and structural reforms to redefine the role of the government in a market system. For the first time, this book presents reforms that have not been covered by existing literature, such as those of China, Colombia, France, Hungary, Mexico, and South Africa. The book also for the first time presents a comprehensive review of how the United States turned its embryonic debt market for state and local governments into the largest market today, through a series of reforms that are path dependent, including the reforms and lessons learnt following state defaults in the 1840s and the largest subnational default in 1983. However different the country contexts are, readers can draw broad and profound lessons.