OECD Journal on Budgeting

The OECD Journal on Budgeting is published three times per year. It draws on the best of the recent work of the OECD Committee of Senior Budget Officials (SBO), as well as special contributions from finance ministries, academics and experts in the field and makes it available to a wider community in an accessible format. The journal provides insight on leading-edge institutional arrangements, systems and instruments for the allocation and management of resources in the public sector.

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Insolvency Frameworks for State and Local Governments

Insolvency frameworks stipulate rules and procedures to resolve debt in a prompt and orderly way. Such frameworks may serve to facilitate debt restructuring and the fiscal recovery even of subnational entities, including states and municipalities. They may even prevent subnational governments from sliding into insolvency. This paper identifies the benefits of setting up an insolvency framework for subnational governments, complementing existing budget rules and procedures. It analyses different design options of subnational insolvency frameworks by drawing on existing regimes for municipalities in Colombia, Hungary, South Africa, Switzerland and the United States as well as proposals for sovereign bankruptcy procedures in the literature. The paper also explores the main challenges for implementing subnational insolvency regimes and presents possible solutions.


Keywords: debt resolution frameworks, municipal bankruptcy, Subnational insolvency
JEL: H70: Public Economics / State and Local Government; Intergovernmental Relations / State and Local Government; Intergovernmental Relations: General; K30: Law and Economics / Other Substantive Areas of Law / Other Substantive Areas of Law: General
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