Overview

Subnational debt refers to the borrowing undertaken by regional or local governments, such as states, provinces, cities, or municipalities. Fiscal transfers, on the other hand, refer to the distribution of financial resources from the central government to regional or local governments.The growth implications of subnational debt and fiscal transfers depend on how effectively these financial instruments are managed and utilized. In general, subnational debt can have both positive and negative effects on economic growth. On the one hand, it can enable regional or local governments to finance infrastructure projects and other public investments that can enhance productivity and facilitate economic activity. On the other hand, excessive subnational debt can create a burden on the public budget and hinder growth.Fiscal transfers can also have both positive and negative effects on growth. In theory, fiscal transfers can help reduce regional disparities and support the development of lagging regions, which can lead to more balanced growth. However, if fiscal transfers are not properly targeted and managed, they can result in rent-seeking behavior by subnational governments and lead to inefficient use of resources.Overall, the growth implications of subnational debt and fiscal transfers depend on a range of factors, including the level of indebtedness, the quality of public investment projects, the targeting of fiscal transfers, and the efficiency of subnational governments in managing their finances.

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9781805297420

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