Review Reports - The Fallacy of Green Municipal Bonds in Developing Countries

Round 1

Reviewer 1 Report

Comments and Suggestions for Authors

The article is well-intentioned and addresses an important topic, but it requires significant revisions to meet the standards of publication. Key areas for improvement include the clarity of research questions, the coherence of arguments, and the thoroughness of the conclusions.

- The research design is outlined, but the hypotheses and research questions are not explicitly stated, which detracts from the study's clarity. Provide a more detailed explanation of the data collection process and analytical techniques.

- The arguments presented are somewhat coherent but lack depth. The discussion section, in particular, should be more balanced, critically engaging with the findings and considering alternative interpretations. The link between the findings and the arguments made earlier in the paper needs to be strengthened.

-The results somewhat support the conclusions drawn, but they are presented in a manner that appears to be more speculative than definitive. The authors need to more rigorously tie their conclusions to the empirical evidence presented in the paper.

Author Response

We have incorporated all suggestions from the reviewers. More specifically, we have undertaken the following:

Introduction section - We have rewritten the introduction section to capture the hypothesis and the article structure. We have edited it to ensure that the myths are called out explicitly
Sources of funding - we have added more information on public and private financing for subnational governments (SNGs)
Green municipal bonds - we have added a sub-section to lay the case for green municipal bonds. This section calls out the myths that will be debunked later in the conclusions
Case studies - We have added the steps and processes involved in the issuance of green bonds while comparing some of the traditional-, and green bond issuances highlighting the key lessons from each of the case studies
Conclusion - We have rewritten the key takeaways and recommendations making them more targeted to the findings in the case studies used in the article

Reviewer 2 Report

Comments and Suggestions for Authors

Thanks for the opportunity to review this paper. The manuscript is well-written, with ample discussions of concrete examples and case studies. Having said that, the paper could strengthen the message by enriching the policy recommendations. In the key takeaway and recommendation section, the author(s) could reiterate the aspect of fiscal decentralization because the article studies municipal government financing. Specifically, the paper could emphasize two issues in the conclusion section—(i) quality of local public financial management and (ii) fiscal unsustainability. First, the paper could emphasize the importance of governance. In other words, it is crucial to for countries (especially, for local governments) to have better quality of public financial management. The recent study by Nakatani et al. (2022) found that countries could reap the benefits from fiscal decentralization only when they have good quality of governance. Second, it is noteworthy that when a country decentralizes fiscal operation to the municipal level, the likelihood of the occurrence of a fiscal crisis increases. A recent study by Nakatani (2023) found such empirical evidence. This is because decentralizing public financing to the lower level of government (i.e., municipalities) could lead to a local fiscal indiscipline as a result of moral hazard when municipal governments expect bailout by the central government in the face of overborrowing. These two aspects need to be discussed at the end by adding the relevant literature.

References

Nakatani, Ryota, Qianqian Zhang, and Isaura Garcia Valdes. 2022. "Fiscal Decentralization Improves Social Outcomes When Countries Have Good Governance," IMF Working Papers 2022/111.

Nakatani, Ryota. 2023. "Fiscal Crises, Decentralization, and Indiscipline," Scottish Journal of Political Economy, 70(5): 459-478.

Author Response

We have incorporated all edits as suggested. More specifically, we have done the following:

Introduction section - We have rewritten the introduction section to capture the hypothesis and the article structure. We have edited it to ensure that the myths are called out explicitly
Sources of funding - We have added more information on public and private financing for subnational governments (SNGs)
Green municipal bonds - We have added a sub-section to lay the case for green municipal bonds. This section calls out the myths that will be debunked later in the conclusions
Case studies - We have added the steps and processes involved in the issuance of green bonds while comparing some of the traditional-, and green bond issuances highlighting the key lessons from each of the case studies
Conclusion - We have rewritten the key takeaways and recommendations making them more targeted to the findings in the case studies used in the article