When lack of accountability allows observing unobservables: moral hazard in sub-national government credit markets in Mexico

This article estimates the amount of moral hazard effect in sub-national credit markets. I employ the case of Mexico because of the country's lack of political accountability; a fact that I argue allows for observation of this informational problem. In particular, out of every dollar borrowed,...

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Bibliographic Details
Published in:Applied economics letters 2018-03, Vol.25 (5), p.326-330
Main Author: Hernández-Trillo, Fausto
Format: Article
Language:English
Subjects:
Accountability
Bond markets
Central government
Credit
credit markets
debt
Economic analysis
Economic theory
Economics
Government bonds
Government spending
information asymmetries
Local government
Markets
Mexico
Moral hazard
Morality
sub-national governments
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Summary:This article estimates the amount of moral hazard effect in sub-national credit markets. I employ the case of Mexico because of the country's lack of political accountability; a fact that I argue allows for observation of this informational problem. In particular, out of every dollar borrowed, sub-national governments spend 45 cents in activities unrelated to the purpose of credit.
ISSN:1350-4851
1466-4291
DOI:10.1080/13504851.2017.1321828