Subnational Fiscal Policy in Large Developing Countries: Some Lessons from the 2008-09 Crisis for Brazil, China and India

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Tác giả: Shahrokh Fardoust

Ngôn ngữ: eng

Ký hiệu phân loại: 330 Economics

Thông tin xuất bản: World Bank, Washington, D.C., 2013

Mô tả vật lý:

Bộ sưu tập: Tài liệu truy cập mở

ID: 302742

 In response to the Great Recession of 2008, many national governments implemented fiscal stimuli packages in 2009 and 2010 to prevent further declines in aggregate demand and to jump start their economic recovery. Where subnational governments responded with fiscal contraction, as in the United States, the impact was muted
  where states/provinces also expanded expenditures, as in China and India, the impact was magnified. Increases in recurrent expenditure, which were made in Brazil and India, acted as short-term stimulants
  additional public investment, as in China, appears to have had a more lasting impact on growth. Large developing countries typically exhibit high interregional inequality in levels of development and global integration, resulting in differential magnitude and timing of the crisis impact. For example, coastal states in India were affected more severely and quickly than landlocked states
  revenue moved in opposite directions in the two types of state in 2009. Where fiscal stress varies widely across subnational entities, central transfers alone cannot prevent pro-cyclicality of subnational fiscal response to a recession. There is need for flexibility in subnational borrowing within a sustainable fiscal framework. Many Indian states were able to maintain or accelerate their spending thanks to the additional borrowing permitted in 2009 and 2010. In comparison, limited borrowing capacity and lack of flexibility in federal grants restricted the contribution of Brazilian states to fiscal stimulus. Legal prohibition of subnational borrowing induced China's provinces to finance additional investments through extra-budgetary borrowing by nongovernment entities, with significant fiscal risks on account of contingent liabilities.
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