| Summary: |
This book is the product of a multicountry research project at the World
Bank aimed at understanding the institutional settings in which decentralization
may lead to large fiscal deficits and macroeconomic instability.
The project was undertaken by the Decentralization Thematic
Group, which found a significant gap in knowledge regarding the
macroeconomic risks associated with decentralization. Not until there
is a better understanding of how and why decentralization poses risks
to macroeconomic stability can governments begin to design policies
and institutions to safeguard against those risks.
The study develops an analytical framework for considering the
issues related to soft budget constraints for state and local governments,
including the institutions, history, and policies that drive expectations
for bailouts among subnational governments. Four mechanisms
for disciplining subnational governments—fiscal, financial, political,
and land markets—are developed and applied to each of the eleven
country case studies (Argentina, Brazil, Canada, China, Germany,
Hungary, India, Norway, South Africa, Ukraine, and the United States)
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