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Article

Are Central Government Rules Okay? Assessing the Hidden Costs of Centralised Discipline for Municipal Borrowing

Department of Economics and Business Sciences, University of Cagliari, 09123 Cagliari, Italy
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Sustainability 2020, 12(23), 9932; https://doi.org/10.3390/su12239932
Received: 31 October 2020 / Revised: 19 November 2020 / Accepted: 24 November 2020 / Published: 27 November 2020
In the EU, the specialty municipal banks have been the traditional funding source besides tax sharing and governmental transfers for Local Governments (LGs). With the decentralization process, LGs experienced different market-based options so that banks were no longer the only source of funding. However, with the onset of the Eurozone crisis, public sector debt is no more risk-free, and the cost of borrowing became unstable over time. To minimise such risks, Central Governments forced LGs to adopt general principles of control of local borrowing. Previous studies evidenced that centralised controls affect unitary countries more than federations. This paper investigates the Centralised Discipline and Control Model to understand whether it generates hidden costs. For such a purpose, the paper compares municipal bonds against borrowing from banks in Italy, a European unitary country. This paper highlights the existence of hidden costs for Italian LGs because the Central Government set up an expensive system for controlling the entire public sector debt. Policy makers should pay particular attention to which model of control to adopt by considering their country’s specific characteristics and the potential impacts of the different models on them, according to the present economic circumstances. View Full-Text
Keywords: Central and Local Governments; governance of municipal borrowing; municipal bonds; borrowing from banks; cost of debt Central and Local Governments; governance of municipal borrowing; municipal bonds; borrowing from banks; cost of debt
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MDPI and ACS Style

Eltrudis, D.; Monfardini, P. Are Central Government Rules Okay? Assessing the Hidden Costs of Centralised Discipline for Municipal Borrowing. Sustainability 2020, 12, 9932. https://doi.org/10.3390/su12239932

AMA Style

Eltrudis D, Monfardini P. Are Central Government Rules Okay? Assessing the Hidden Costs of Centralised Discipline for Municipal Borrowing. Sustainability. 2020; 12(23):9932. https://doi.org/10.3390/su12239932

Chicago/Turabian Style

Eltrudis, Davide, and Patrizio Monfardini. 2020. "Are Central Government Rules Okay? Assessing the Hidden Costs of Centralised Discipline for Municipal Borrowing" Sustainability 12, no. 23: 9932. https://doi.org/10.3390/su12239932

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