Sustainable Financial Management of Local Capital Markets: A Cross-National Comparison between China, Mexico, South Korea and the United States

This study aims to explore what determines subnational debt levels and sovereign financial sustainability. Scholars argue that subnational fiscal capacity help local governments deliver better public services and provide public goods, which in turn helps to promote economic growth. The paper comprised of two parts: The first provides solid understanding about the characteristics of administrative structure, management of subnational government debt, and structure of debt portfolio of each country. In the second part, we test our hypotheses focused on the distinct types of administrative structures, fiscal capacity, and political-economic factors that may affect the probability of profligate debt spending by local governments. Our findings show when central governments have clear rules to intergovernmental transfers in place and more liberal policies, lower amounts of profligate debt spending occur. Consistent with other studies (Canuto and Liu 2010), when local governments have more fiscal capacity (per capita) and high unemployment rates, they are likely to have higher amounts of debt at the local level. Suggesting the need for more authority and control by the central government, even when decentralization has been implemented (Smith and Revell 2016).