how well do subnational borrowing regulations work?

8/18/2019 How Well Do Subnational Borrowing Regulations Work?

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I@LM [ardmnk Ziper Wermes

Faw [ecc @a Wulnitmanic Larrawmnk \ekucitmans [ard1

Barke Hirtmnez-_izquezin` _maceti _ucavmg

Na. 5?7Hirgf


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Pfe [ardmnk Ziper sermes ms i gantmnuitman ao tfe oarhercy nihe` @msgussman Ziper sermes4tfe nuhlermnk ao tfe pipers gantmnue` wmtfaut mnterruptman ar gfinke. I@LM”s wardmnkpipers reocegt mnmtmic mèis an i tapmg in` ire paste` ancmne oar `msgussman. I@LM engaurikesreièrs ta past tfemr gahhents an tfe himn pike oar eigf wardmnk piper (kmven mn tfegmtitman lecaw). Wahe wardmnk pipers hiy èvecap mnta atfer oarhs ao pulcmgitman.

Wukkeste` gmtitman2

Hirtmnez-_izquez, B., in` _. _ucavmg.


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I@LM [ardmnk Ziper 5?7 Hirtmnez-_izquez in` _ucavmg

Ilstrigt

Pfere ire hiny pasmtmve ispegts issagmite` wmtf sulnitmanic larrawmnk, mngcu`mnk i``mtmanicoun`mnk in` prahatmnk mnterkeneritmanic equmty. Fawever, mt hiy icsa enìnker omsgicsustimnilmcmty in` higra stilmcmty ùe ta haric fizir` in` saot lu`ket ganstrimnts, hidmnklarrawmnk gantracs bustmome` in` gahhan. Pfms stu`y revmews tfe `mooerent types ao ex-intein` ex-past sulnitmanic larrawmnk rekucitmans use` mn tfe mnternitmanic expermenge lise` ani cirke pinec ao èvecape` in` èvecapmnk gauntrmes. Eigf type ao rekucitmans fisi`vintikes in` ̀ msi`vintikes, wmtf virymnk sumtilmcmty ta i gauntry”s gmrguhstinges.

Mt ms oaun` tfit tfe presenge ao sulnitmanic tix iutanahy gantrmlutes ta in mngreise mn tfekeneric kavernhent prmhiry licinge lut nat smknmomgintcy oar sulnitmanic prmhiry licinges. Ifmstary ao sulnitmanic limcauts ms issagmite` wmtf cawer prmhiry licinges, an iverike, it icccevecs. Pfe –kacèn ruce‘ in` cmhmts an èlt in` larrawmnk ippeir eooegtmve it icc cevecs aokavernhent. Fawever, nane ao tfe lrai` types ao sulnitmanic larrawmnk rekucitmans seeh tafive i `mstmngt smknmomgint `mregt eooegt an tfe nirraw èomnmtman ao omsgic sustimnilmcmty it tfesulnitmanic cevec.

BEC Gcissmomgitman2 F;:, F;0, F?7, F69


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Gantents

9. Mntra`ugtman .................................................................................................................... 7


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9. MNP\A@UGPMAN9

Exmstmnk cmteriture wmècy igdnawce`kes tfe mhpartinge ao mnoristrugture oar eganahmgkrawtf, quicmty ao cmoe, in` paverty reùgtman. < [mtf èep ègentricmzitman tren`stfraukfaut icc rekmans ao tfe warc`, is wecc is sulnitmanic kavernhents mn gfirke aoilaut twa-tfmr`s ao tatic pulcmg mnoristrugture spen`mnk, tfere fis leen i nituricmngreise mn tfe mhpartinge ao sulnitmanic larrawmnk oar omningmnk tfms mnoristrugture.7

Ictfaukf sahe gauntrmes prafmlmt larrawmnk ly sulnitmanic kavernhents, 0 atfersiccaw mt, is tfey lecmeve tfe eoomgmengy in` equmty leneomts ao larrawmnk autwemkf tfeissagmite` higraeganahmg rmsds.5 Oigtars, sugf is i cigd ao mnstmtutmanic gipigmty in`fmstary ao sulnitmanic kavernhent èoiucts mn atfer ègentricmze` systehs, kmve gentrickavernhents reisans ta rekucite sulnitmanic kavernhent iutanahy ly mntraùgmnkeooegtmve larrawmnk gantracs. Pfe gficcenke ms ta igfmeve larrawmnk iutanahy wfmcepreservmnk omsgic `msgmpcmne ly preventmnk tfe mnsacvengy ao sulnitmanic kavernhentsin` issurmnk nitmanic omsgic sustimnilmcmty.?

Wulnitmanic kavernhents five oewer mngentmves tfin gentric kavernhents ta legangerne` wmtf tfe higraeganahmg mhpigt ao tfemr pacmgmes. Wulnitmanic kavernhentsà nat leir‐ar it ceist tfey pergemve sa‐tfe oucc gast ao tfemr igtmans4 tfey irenat gangerne` wmtf nitmanic omsgic sustimnilmcmty is gentric kavernhents ire. ; [fmcewecc-èsmkne` omsgic ègentricmzitman systehs, espegmiccy an tfe smè ao sulnitmanicrevenue iutanahy, gin enfinge ar it ceist nat firh omsgic sustimnilmcmty (Oudisiduin` @e Hecca 9==6), ègentricmzitman gin pase smknmomgint rmsds ta omsgic sustimnilmcmty. I`msgmpcmne` sulnitmanic larrawmnk pragess ms tfus neeè` (Per-Hmnissmin 9==;l).6

@ue ta tfe patentmic cank-terh gansequenges ao sulnitmanic larrawmnk an omsgicsustimnilmcmty in` higraeganahmg stilmcmty, hast gauntrmes hinike sulnitmaniclarrawmnk in` èlt ly mhpcehentmnk ex-inte in`/ar ex-past rekucitmans. Ex-interekucitmans gin gansmst ao `mregt gantrac ly tfe gentric kavernhent, omsgic rucespreèterhmne` mn ganstmtutmans ar arkinmg ciws, ar i recminge an omningmic hirdets in`tfemr hegfinmshs ta gantrac larrawmnk. Ex-past rekucitmans gahprmse singtmans oarnangahpcminge ao ruces in` mhpruènt lefivmar. Pfere ms gansensus tfit latf ex-intein` ex-past rekucitmans sfauc` le use` smhuctineauscy, in` sfauc` gansmèr latflarrawers in` cenèrs ([ell


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tfe larrawers in` cenèrs mngentmves oar mrrespansmlce lefivmar, smnge mt leirs nagansequenges. \ecminge an ancy ex-past rekucitmans hiy kmve spige ta cirkesulnitmanic kavernhents ta averlarraw in` lumc` up èlts sa cirke tfit tfe gentrickavernhent ginnat enoarge tfeh ta leir tfe gansequenges, kmven tfemr mhpartinge mntfe nitmanic eganahy.

Ane vmew ms tfit mn rekucitmnk sulnitmanic larrawmnk, omningmic hirdets mhpase enaukfruces an èltars in` gre`mtars. Atfer cekic ruces ire unnegessiry, is hirdet gan`mtmansicrei`y mhpase eooegtmve singtmans tfraukf fmkfer mnterest rites in` ènmic aocen`mnk. Fawever, tfe fmstary ao sulnitmanic larrawmnk mn sahe gauntrmes unèrkamnkègentricmzitman sukkests tfit exgcusmve recminge an omningmic hirdets mn himntimnmnksulnitmanic omsgic `msgmpcmne hiy nat le enaukf (Per-Hmnissmin in` Grimk 9==;). Pfenegessiry gan`mtmans ao èvecape` omningmic hirdets, ivimcilmcmty ao omningmicmnoarhitman, in` na limcauts ly tfe gentr ic kavernhent ire kenericcy nat het, in`èoiucts gin five cank-terh gansequenges.=

I gahhancy iggepte` èomnmtman ao omsgic sustimnilmcmty stites tfit tfe omsgic licinge in`

unèrcymnk tren`s ire sugf tfit mn i stei`y stite, tfe ritma ao autstin`mnk èlt in` èltservmgmnk ta krass àhestmg praùgt (K@Z) àes nat mngreise aver tmhe (Msfmfiri


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letween gentriccy mhpase` in` seco-mhpase` ruces), i`hmnmstritmve rekucitman, in`gaaperitman rekucitman. Pfe resucts altimne` orah usmnk tfese types ao sulnitmaniclarrawmnk rekucitmans ire gahpire` wmtf tfase altimne` orah prafmlmtmnk larrawmnk ittfe sulnitmanic cevec.

Wegtman < revmews tfe cmteriture an tfe eooegt ao sulnitmanic larrawmnk in` rekucitmansan omsgic sustimnilmcmty. Wegtman 7 revmews tfe spegtruh ao ex-inte in` ex-pastsulnitmanic larrawmnk rekucitmans, in` segtman 0 presents tfe ehpmrmgic hetfa`acakyin` `msgusses tfe resucts. Wegtman 5 gangcu`es.


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tfit na pirtmgucir type ao rekucitman fis warde` letter tfin atfers. I smhmcir gangcusmanwis reigfe` ly Denne`y in` \allmns (


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sulnitmanic larrawmnk97 àes nat seeh ta five iny gansmstent eooegt an sulnitmanicomsgic èomgmts. Icesmni, et ic. (9===) oaun` i nekitmve garrecitman letween omsgic rucescmhmtmnk èlt cevecs in` omsgic èomgmts mn Citmn Ihermgi.

\a`èn (


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7. WULNIPMANIC LA\\A[MNK \EKUCIPMANW MN PFEMNPE\NIPMANIC EVZE\MENGE

Is Omkure 9 presents, hast gauntrmes tfit mntraùge` larrawmnk it tfe sulnitmanic cevecioter 9==: preoer gentriccy mhpase` ruces ar `mregt gantrac ly tfe gentric kavernhentis tfe àhmnint type ao rekucitman. Pfere fis leen i recitmve ègreise mn sace recmingean omningmic hirdets mn rekucitmnk sulnitmanic larrawmnk, wfmgf hiy le expcimne`ly expermenge kimne` orah regent grmses mn wfmgf sulnitmanic larrawmnk pciye` ihibar race.

Omkure 92 Lrai` Pypes ao Ex-Inte Wulnitmanic Larrawmnk \ekucitmans(recitmve orequengy mn tfe sihpce) (%)

Nate2 Wihpce gansmsts ao ?: mnùstrmicmze`, ̀ evecape`, in` trinsmtmanmnk gauntrmes.

Waurge2 Iutfars” gicgucitmans.

Mn tfe cist < ègiès, tfere fis icsa leen in mngreise` tren` ao mhpasmnk cekicsingtmans oar nangahpcminge, hastcy wfen sulnitmanic larrawmnk ms àhmnintcyrekucite` ly gentriccy mhpase` ruces (Omkure


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Omkure


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gipmtic mnvesthents, (m.e., tfe –kacèn ruce‘)4 (mm) settmnk cmhmts an dey omsgic virmilces,sugf is tfe prmhiry in`/ar omsgic èomgmt in` èlt servmge ritma4 in` (mmm) requmrmnksulnitmanic kavernhents ta estilcmsf he`muh-terh omsgic orihewards in` trinspirentlu`ketiry pragesses. Pa mhprave omsgic trinspirengy, hare gauntrmes ire mntraùgmnkgre`mt-ritmnk systehs oar sulnitmanic kavernhents is pirt ao rekucitary orihewards oarsulnitmanic larrawmnk.

7.9.9 Hirdet @msgmpcmne

Mn sahe gauntrmes, tfe kavernhent recmes sacecy an gipmtic hirdets ta rekucitesulnitmanic larrawmnk. Hirdet `msgmpcmne heins tfit tfe omningmic hirdets ire gipilceao sen`mnk ippraprmite smknics ta prevent i larrawer orah entermnk –unsustimnilceireis,‘ in` larrawmnk ms cmhmte` ly cenèrs” wmccmnkness ta mnvest. Gre`mt ikengmes, sugfis Wtinìr` in` Zaar”s, Haa`y”s, in` Omtgf, pravmè cenèrs in` larrawers wmtfmnoarhitman ilaut tfe rmsd ao èoiuct. Wulnitmanic kavernhents kenericcy five `mregtiggess ta omningmic hirdets ta heet tfemr larrawmnk requmrehents. \estrmgte` iggess taoaremkn gipmtic hirdets cmhmts tfe ivimcilce aptmans in` greites i sulaptmhic omningmic

segtar partoacma (Kmukice, Prmcca, Acmvemri


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Omkure 02 Iccawmnk Wulnitmanic Larrawmnk mn Oaremkn Gipmtic Hirdets(recitmve orequengy mn tfe sulsihpce) (%)

Nate2 Wulsihpce gansmsts ao 7= gauntrmes mn 9==:, 0; mn


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7.9.< Omsgic \uces

\uces-lise` rekucitmans gansmst ao omsgic ruces mhpase` ly tfe gentric kavernhentin` spegmome` mn ganstmtutmans ar arkinmg ciws. Wugf ruces mntraùge ganstrimnts anomsgic gfamges ly sulnitmanic kavernhents ta kuirintee tfit omsgic autgahes rehimn

pre`mgtilce in` ralust rekir`cess ao tfe kavernhent mn gfirke. \uces hiy tide`mooerent oarhs2 gemcmnks an èlt ar tatic larrawmnk, èomgmt tirkets, hixmhuhexpen`mture ruces, tfe –kacèn ruce,‘ ar ruces recite` ta èlt repiyhent gipigmty.

Larrawmnk in` èlt gemcmnks represent tfe larrawer”s upper cekic cmhmts ao taticmnèlte`ness in` ire kenericcy smhpce in` eisy ta hanmtar. I èomgmt tirket fis tfei`vintike ao lemnk eismcy unèrstaa` ly tfe pulcmg, lut mt hiy le unsuggessouc mnpreventmnk exgessmve èlt igguhucitman legiuse ao aoo-lu`ket mtehs. Pfe hastgahhan èomgmt tirket ruces ire tfase tirketmnk tfe avericc lu`ket èomgmt (e.k., Iustrmi,Leckmuh, Wpimn, in` hast stites mn tfe Unmte` Wtites) ar tfe aperitmnk èomgmt (e.k.,Narwiy). @eomgmt tirket ruces gin icsa le het it fmkfer cevecs ao revenues inèxpen`mtures, wfmgf hiy five higraeganahmg mhpcmgitmans.

Expen`mture ruces set tfe cmhmts an tfe expen`mture cevec, in` ire gangeptuiccy smhpce,eisy ta hanmtar, in` gin le hast `mregtcy gantracce .̀ Fawever, in expen`mture cmhmt ginle hare `moomguct ta mhpcehent it tfe sulnitmanic cevec tfin i èomgmt tirket in` hiy natnegessirmcy le ilce ta prevent èlt igguhucitman, smnge spen`mnk gauc` le pusfe`lecaw tfe cmne.

Pfe –kacèn ruce‘ hastcy sitmsomes tfe mnterkeneritmanic equmty bustmomgitman oar larrawmnk.Fawever, larrawmnk oar mnoristrugture àes nat kuirintee ly mtseco higraeganahmg in`èlt stilmcmty. Pypmgiccy, mnoristrugture mnvesthents ire requmre` ta pravmè –ièquite‘eganahmg in` sagmic rites ao return ta le èsmrilce ar le ipprave`. Hiny gauntrmesgurrentcy mhpcehent sahe oarh ao tfe –kacèn ruce‘ (e.k., Kerhiny, Wpimn, tfe Unmte`Dmnkàh, in` hast stites mn tfe Unmte` Wtites).

Omniccy, ruces recite` ta tfe gipigmty ta repiy èlt ittehpt ta stmhucite tfe wardmnks aotfe hirdet `msgmpcmne ippraigf ly recitmnk tfe cmhmts an mnèlte`ness ta expegte` èltservmge (e.k., Gacahlmi in` Funkiry mn tfe 9==:s). Pfese ruces, fawever, hiy nat leis eooegtmve mn gantraccmnk ̀ elt igguhucitman mo omningmic gan`mtmans ire hinmpucite`.

Omsgic ruces five tfe i`vintike ao lemnk kenericcy trinspirent, hare eooegtmve mni``ressmnk cank-terh sustimnilmcmty in` mnterkeneritmanic equmty, in` recitmvecy eisy tahanmtar. Pfey gin, fawever, le gaunterpraùgtmve mo paarcy èsmkne` ar mnièquitecyenoarge`. Hast gauntrmes usmnk tfe ruce-lise` ippraigf use i virmety ao ruces, saheao wfmgf ire reùnìnt. Pfe himn `msi`vintike ao tfe ruce-lise` ippraigf ms tfetriè-aoo letween ensurmnk gahpcminge in` preservmnk ocexmlmcmty. Wtrmgt omsgic rucesceive cmttce raah oar i`busthents mn gise ao unexpegte` eganahmg àwnturns, wfmce

hare ocexmlce omsgic ruces cigd gre`mlmcmty in` hiy oimc ta mhpase suoomgment `msgmpcmne. Mnprigtmge, tfe eoomgigy ao omsgic ruces oar sulnitmanic kavernhents prmhirmcy èpen`s antfe ilmcmty ta hanmtar tfe èlt.

Pfere fis leen in mngreise` tren` ta mhpase cmhmts an sulnitmanic èlt in` larrawmnkùrmnk tfe cist < ègiès (Omkure 5). Pfe use ao tfe –kacèn ruce‘ fis icsa mngreise`,lut nat ly is hugf.

97


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Omkure 52 Mhpasmnk Cmhm ts an Larrawmnk in` @elt in` tfe –Kac`en \uce‘(recitmve orequengy mn tfe sulsihpce) (%)

Nate2 Wulsihpce gansmsts ao 7= gauntrmes mn 9==:, 0; mn


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7.9.7 I`hmnmstritmve \ekucitman

Pfe i`hmnmstritmve ippraigf ms appasmte orah tfe hirdet `msgmpcmne ippraigf, kmvmnk tfegentric kavernhent `mregt gantrac aver sulnitmanic larrawmnk. Mt hiy tide `mooerentoarhs, sugf is settmnk in innuic ar even hare orequent cmhmt an avericc sulnitmanic

kavernhent èlt4 prafmlmtmnk externic larrawmnk4 revmewmnk mn`mvmùic larrawmnkaperitmans, mngcu`mnk ippravmnk terhs in` gan`mtmans4 ar gentricmzmnk icc kavernhentlarrawmnk wmtf ancen`mnk ta sulnitmanic kavernhents. Pfe ippravic ao eigf larrawmnkmssuinge requmres in evicuitman ao omningmic terhs in` gan`mtmans unèr wfmgf eigfaperitman ms gantrigte`. Pfe i`hmnmstritmve ippraigf ms hare orequentcy use` ly unmtirygauntrmes in` cess ly oeèric gauntrmes.

@mregt mnvacvehent ao tfe gentric kavernhent mn hmgrahinikmnk eigf gre`mt aperitmanit tfe sulnitmanic kavernhent cevec ms i `msi`vintike ao tfms ippraigf, smnge mt ms tfeappasmte ao tfe omsgic ègentricmzitman mèi. Hareaver, tfms ippraigf hiy unnegessirmcymngreise lureiugrigy, giuse unèsmrilce mneoomgmengmes mn tfe omningmic systeh, in`hiy even le mngahpitmlce wmtf i gauntry”s ganstmtutman mo mt iccaws tfe sulnitmanic

kavernhent oree iggess ta tfe gipmtic hirdet. Inatfer `msi`vintike ms tfe haricfizir` resuctmnk orah tfe oigt tfit tfe gentric kavernhent hiy omn` mt `moomguct ta reouseta omningmiccy suppart tfe cawer cevecs ao tfe kavernhent mn gises ao mhpen`mnk èoiucts.

Pfe i`hmnmstritmve ippraigf icsa fis i`vintikes. Pfe gentric kavernhent gin gantraclatf tfe higraeganahmg in` externic èlt pacmgy. Hareaver, tfe gentric kavernhent”sgantrac hiy mngreise tfe sulnitmanic larrawer”s gre`mlmcmty, kmven tfit oaremkn cenèrsaoten requmre i gentric kavernhent kuirintee, in` mt hiy icsa resuct mn letter terhsin` gan`mtmans regemve` mn oaremkn omningmic hirdets.

@enhird, Kreege, Mrecin`, Hexmga, in` tfe Unmte` Dmnkàh prigtmge tfe i`hmnmstritmvegantrac ippraigf mn rekucitmnk sulnitmanic larrawmnk. Mn Hexmga, stites in`hunmgmpicmtmes, mngcu`mnk tfemr ègentricmze` ikengmes in` pulcmg enterprmses, gin ancy

larraw àhestmgiccy ta omninge mnvesthent autciys up ta tfe gemcmnks set ly tfemrrespegtmve cekmscitures. Uncmde severic atfer gauntrmes mn Citmn Ihermgi, Hexmga àesnat five i omsgic respansmlmcmty ciw even unèr gansmèritman. Mt uses omningmic segtarrekucitmans mnstei` ta hatmvite stite-cevec pruènge.

Mn tfe Unmte` Dmnkàh, i cagic iutfarmty hiy nat, wmtfaut tfe gansent ao tfe Preisury,larraw orah i cenèr orah ilrai` ar mn i gurrengy atfer tfin paun`s stercmnk. Pfere,larrawmnk cmhmts à `mooer ihank sulnitmanic kavernhents ([itts


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7.9.0 Gaaperitmve \ekucitman

Unèr tfms ippraigf, sulnitmanic larrawmnk gantracs ire èsmkne` tfraukf inekatmitman pragess letween tfe gentric in` cawer cevecs ao kavernhent. Wulnitmanickavernhents ire igtmvecy mnvacve` mn reigfmnk in ikreehent an avericc keneric

kavernhent èomgmt tirkets, himn revenue in` expen`mture mtehs, is wecc is cmhmts anomningmnk mn`mvmùic sulnitmanic burms`mgtmans. Pfms ippraigf ms mn prigtmge mn saheEurapein gauntrmes in` Iustricmi.

Pfe gaaperitmve ippraigf gahlmnes hiny mn`mvmùic i`vintikes ao tfe atfer tfreeippraigfes, wfmgf ms latf mts himn strenktf in` weidness. I gceir i`vintike cmes mnprahatmnk `micakue in` tfe exgfinke ao mnoarhitman igrass virmaus kavernhent cevecs,is wecc is mn rimsmnk iwireness ao tfe higraeganahmg mhpcmgitmans ao lu`ketirygfamges. Pa le eooegtmve, tfms ippraigf requmres tfe gentric kavernhent ta le strankin` ilce ta eooegtmvecy kumè mnterkavernhent nekatmitmans, wfmgf mn hiny eherkmnkhirdets hiy nat le tfe gise (Bauhir` in` Danksru`


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Iggar`mnk ta Cmelmk, et ic. (


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0. EHZM\MGIC INIC]WMW IN@ OMN@MNKW

0.9 @iti an Wulnitmanic Larrawmnk \ekucitmans

Pfe ehpmrmgic inicysms ms lise` an ìti oar 5; èvecape`, èvecapmnk, in` trinsmtmanmnkgauntrmes, letween 9==: in`


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Gauntrmes mhpcehent tfree types ao cekic singtmans oar nangahpcminge2 i`hmnmstritmve,pacmtmgic, in` omningmic singtmans. Fawever, oar tfe purpase ao tfms stu`y, tfese types aosingtmans ire nat sepiritecy mèntmome`.

Pilce 9 presents tfe sihpce strugture mn terhs ao sulnitmanic larrawmnk rekucitmans.

Pfere were 9? gfinkes ao àhmnint sulnitmanic larrawmnk rekucitmans ùrmnk tfealservitman perma`.96 Ourtferhare,


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revenues, i ùhhy virmilce tfit tides tfe vicue 9 mo tfe trinsoer iccagitman ms lise` ani stilce oarhuci4 tfe sfire ao sulnitmanic expen`mtures mn tatic keneric kavernhentexpen`mtures4 in` i ùhhy tfit tides i vicue ao 9 mo tfe sulnitmanic iutfarmty ms ilce taset in`/ar gfinke rites oar mngahe, lusmness, ar gansuhptman tixes.

Next,

represents i vegtar ao atfer gantrac virmilces kenericcy tfaukft ta iooegt

prmhiry omsgic licinges, mngcu`mnk urlinmzitman, papucitman krawtf, ike èpenèngy,kavernhent stilmcmty, kavernhent origtmanicmzitman, garruptman mnèx, gentric lindmnèpenènge, limcaut fmstary, K@Z per gipmti, mnocitman rite, in` gentric kavernhentlu`ket licinge (oar tfe sulnitmanic kavernhent rekressmans). Omniccy, stin`s oarunalserve` gauntry omxe` eooegts.

Leoare pragee`mnk wmtf tfe estmhitman, severic eganahetrmg pralcehs nee` ta lei``resse` tfit hiy irmse wfen estmhitmnk equitman (9)2

(m) Pfe larrawmnk rekucitman virmilces mn , ire issuhe` ta le enàkenaus.Pfms ms legiuse giusicmty hiy run mn latf `mregtmans, orah tfe prmhiry licingeta tfe ègmsman faw ta rekucite larrawmnk in` vmge versi, in` tfese rekressarshiy le garrecite` wmtf tfe errar terh.

(mm) Pmhe-mnvirmint gauntry gfirigtermstmgs (m.e., omxe` eooegts), sugf is keakripfyin` èhakripfmgs, hiy le garrecite` wmtf tfe expcinitary virmilces. Pfe omxeèooegts ire gantimne` mn tfe errar terh mn equitman (9), wfmgf gansmsts ao tfeunalserve` gauntry-spegmomg eooegts, , in` tfe alservitman-spegmomg errars, , 8 + .

(mmm) Pfe presenge ao tfe cikke` èpenènt virmilce ∜ 9 ms cmdecy ta kmve rmse taiutagarrecitman.

Pa i``ress tfe omrst mssue, ane wauc` usuiccy gfaase in mnstruhentic virmilcesippraigf. Fawever, legiuse tfe patentmiccy enàkenaus virmilces mn , ire iset ao hutuiccy exgcusmve ùhhy virmilces, tfe omrst stike mn tfe mnstruhenticvirmilce rekressman ms ha`mome` ta mngarparite i huctmnahmic cakmt haèc mnstei` aotfe usuic cmneir rekressman. Pfe huctmnahmic cakmt hetfaàcaky, wfmgf iccawsestmhitmnk pralilmcmtmes wmtf wfmgf i gauntry gfaases i pirtmgucir type ao rekucitman, ms`msgusse` lecaw.

Pa i``ress tfe segan` in` tfmr` pralcehs, tfe kenericmze` hetfa` ao hahents (KHH)estmhitar ms use` (Ireccina in` Lan` 9==9), wfmgf wis omrst prapase` ly Factz-Eidmn,Newey, in` \asen (9=66). Pfe `mooerenge KHH estmhitar uses omrst `mooerenges tatrinsoarh equitman (9) mnta

ΐ 8 ΐ∜9 + ΐ + ∏ , + ∏, + ΐ + ΐ + ΐυ + ΐ (


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Next, tfe iutagarrecitman (m.e., tfe tfmr` pralceh) ms i``resse` ly mnstruhentmnk tfeomrst-`mooerenge` cikke` èpenènt virmilce wmtf mts pist cevecs. Pfe Lcunècc in` Lan`(9==6) hetfaàcaky ms ippcme`, in` equitman (9) ms estmhite` usmnk tfe systeh KHHestmhitar. Pa sitmsoy tfe issuhptman ao na garrecitman igrass mn`mvmùics mn tfem`masyngritmg `msturlinges, mt ms mhpartint ta mngcuè tmhe ùhhmes mnta tfe rekressman,wfmgf hides tfms issuhptman hare cmdecy ta fac` (\aa`hin


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0.0 @eterhmnint _irmilces ao WulnitmanicLarrawmnk \ekucitmans

Pa resacve tfe reverse giusicmty mssue mn equitman (9), in exakenaus mnstruhent hust

le oaun`, wfmgf ms garrecite` wmtf larrawmnk rekucitmans lut nat wmtf tfe omsgic licinge.\egiccmnk tfe niture ao icc omsgic ègentricmzitman virmilces, mt ms `moomguct ta omn` inexakenaus mnstruhent tfit iccaws altimnmnk in unlmise` estmhite ao sulnitmaniclarrawmnk rekucitmans an omsgic licinge. Lesmès atfer oigtars, tfe ilmcmty ao sulnitmanickavernhents ta iggess prmvite omningmic hirdets smknmomgintcy èpen`s an tfe èptf aotfe gauntry”s omningmic hirdets in` èvecaphent ao omningmic mnstmtutmans. Pfe èptf aoomningmic hirdets fis in eooegt an faw sulnitmanic larrawmnk ms rekucite`, lut it tfesihe tmhe ms nat `mregtcy iooegte` ly tfe smze ao tfe omsgic èomgmt, tfus representmnk ipatentmic mnstruhent oar sulnitmanic larrawmnk rekucitmans.

Pfe èvecaphent ao omningmic hirdets ms expegte` ta smknmomgintcy iooegt sulnitmaniclarrawmnk iutanahy. Omrst, tfe suppcy ao oun`s mn tfe omningmic hirdet iooegts

sulnitmanic kavernhents” ilmcmty ta larraw4 segan`, tfe èptf ao tfe omningmic hirdetms garrecite` wmtf tfe èvecaphent ao omningmic mnstmtutmans. Fenge, mt ms expegte`tfit gauntrmes wmtf hare èvecape` omningmic hirdets ire hare cmdecy ta iccawhare larrawmnk iutanahy ta sulnitmanic kavernhents. Pa heisure tfe èptf aoomningmic hirdets, twa virmilces ire use`2 tfe cmqum` cmilmcmtmes mn`mgitar in` mnèx aoomningmic oreeàh.

Pfe cmqum` cmilmcmtmes mn`mgitar represents tfe ritma ao cmqum` cmilmcmtmes ta K@Z, wfere cmqum`cmilmcmtmes gansmst ao gurrengy fec` autsmè ao tfe lindmnk systeh pcus èhin`- in`mnterest-leirmnk cmilmcmtmes ao linds in` nanlind omningmic mnterhe`mirmes. Pfus, tfecmqum` cmilmcmtmes mn`mgitar ms i typmgic heisure ao omningmic èptf.

Pfe mnèx ao omningmic oreeàh ms i heisure ao lindmnk eoomgmengy is wecc is ao

mnèpenènge orah kavernhent gantrac in` mnteroerenge mn tfe omningmic segtar. Mt msgreite` lise` an omve lrai` ireis tfit ire gansmère` ta issess in eganahy”s avericccevec ao omningmic oreeàh tfit ensures eisy in` eooegtmve iggess ta omningmnkappartunmtmes oar peapce in` lusmnesses mn tfe eganahy.


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pasmtmvecy iooegt tfe ègmsman ta iccaw sulnitmanic kavernhents ta larraw mn tfe gipmtichirdet. K@Z per gipmti in` papucitman krawtf represent mn`mgitars ao èhin` oarpulcmg servmges, sukkestmnk tfit wmtf tfemr mngreise, tfere hiy le i fmkfer pralilmcmty aoiccawmnk larrawmnk it tfe sulnitmanic cevec.

Is `msgusse` prevmauscy, K@Z per gipmti ms suppase` ta iggaunt oar letter omsgicperoarhinge ao èvecape` gauntrmes in` hare èvecape` omningmic hirdets. Harestilce kavernhents ire expegte` ta le hare cmdecy ta mhpase firèr lu`ket ganstrimntsan icc cevecs ao kavernhent, sukkestmnk i fmkfer pralilmcmty ao gfaasmnk hareègentricmze` sulnitmanic larrawmnk rekucitmans. Pidmnk mnta iggaunt kavernhents”ilmcmty ta hide ègmsmans gaaperitmvecy, ane wauc` expegt tfit gauntrmes wmtf cessorigtmanicmze` kavernhents ire hare cmdecy ta five gaaperitmvecy rekucite` sulnitmaniclarrawmnk, ar larrawmnk rekucite` ly omsgic ruces. Omniccy, limcaut fmstary ms cmdecy ta lefmkfcy garrecite` wmtf gurrent limcaut expegtitmans in` gin le use` is in mnstruhentoar limcaut expegtitmans. Mt ms expegte` tfit gauntrmes wmtf i fmstary ao limcauts hiy lehare cmdecy ta gfaase hare gentricmze` types ao sulnitmanic larrawmnk rekucitmans.

0.5 \esucts ao tfe @eterhmnints ao WulnitmanicLarrawmnk \ekucitmans

Pfe pralilmcmtmes wmtf wfmgf gauntrmes gfaase sulnitmanic larrawmnk rekucitman typesire estmhite` usmnk tfe huctmnahmic cakmt rekressman. Pilce < presents tfe recitmve rmsdritmas ao gfaasmnk pirtmgucir sulnitmanic larrawmnk rekucitmans oar unmt mngreise mnmnèpenènt virmilces.

Kmven tfit latf keneric in` sulnitmanic kavernhent prmhiry licinges ire alserve` tale patentmic èterhmnints ao sulnitmanic larrawmnk rekucitmans, Pilce < presents tfeestmhite` recitmve rmsds oar latf aptmans. Is tfe resucts sfaw, tfe cmqum` cmilmcmtmesvirmilce seehs ta le recitmvecy smknmomgint mn gfaasmnk gaaperitmve rekucitman in`rekucitman lise` an gentriccy mhpase` ruces, gahpire` ta i`hmnmstritmve rekucitmans.

Fawever, is hentmane` ilave, i gangcusman ginnat le hiè ilaut tfe pralilmcmtmes aogfaasmnk ihank tfe rekucitman types presente` mn tfe tilce. Legiuse tfms stu`ymngcuès gahpirmsan ihank smx gitekarmes, tfms wiy ao presentmnk tfe recitmve rmsdritmas ao gfaasmnk ane gitekary aver tfe atfer ms sahewfit ganousmnk. Mt ms hare useoucoar tfe purpase ao inicysms ta present tfe resucts is mn Pilce 7 in` Pilce 0, wfere mt mspassmlce ta gahpire tfe eooegts ao mnèpenènt virmilces an tfe recitmve rmsd aogfaasmnk ane type ao rekucitman aver tfe atfer.

Pfe resucts mn Pilce 7 in` Pilce 0 sukkest tfit tfe èptf ao tfe omningmic hirdet mspirtmgucircy mhpartint oar gfaasmnk gaaperitmve rekucitmans in` rekucitmans lise` an

gentriccy in` seco-mhpase` ruces, aver tfe atfer types ao rekucitmans. Ourtferhare,gauntrmes wmtf i fmkfer keneric kavernhent prmhiry licinge ire hast cmdecy ta gfaasei`hmnmstritmve, seco-mhpase` ruces, in` hirdet-lise` rekucitmans aver tfe atfer types.Hareaver, gauntrmes wmtf i fmkfer sulnitmanic prmhiry licinge ire hare cmdecy tagfaase seco-mhpase` ruces in` hirdet-lise` rekucitmans aver tfe atfers, in` ire ceistcmdecy ta prafmlmt larrawmnk it tfe sulnitmanic cevec. Omniccy, gauntrmes wmtf fmkfersulnitmanic autstin`mnk èlt ire hare cmdecy ta gfaase seco-mhpase` ruces ta rekucitelarrawmnk. Pfe resucts icsa sukkest tfit fmkfer-mngahe gauntrmes gfaase gaaperitmverekucitmans in` seco-mhpase` ruces aver tfe atfers. Next, fmkfer sulnitmanicexpen`mtures seeh ta cei` ta i fmkfer pralilmcmty ao gfaasmnk i`hmnmstritmve in`gaaperitmve rekucitmans. Omniccy, gauntrmes mn wfmgf sulnitmanic kavernhents five tixiutanahy ire hare cmdecy ta gfaase hare ègentricmze` types ao rekucitmans, sugf is

seco-mhpase` ruces in` hirdet-lise` rekucitmans.


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Pilce


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Pilce < gantmnue ̀

Zrmhiry Licinge 8 Wulnitmanic Kavernhent Zrmhiry Licinge

Zrafmlmte` Gaaperitm ve Gentric \uce Weco-\uce Hirdet

Pix iutanahy :.:::*** 7.


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Pilce 7 gantmnue ̀

Cmqum`Cmilmcmtmes

OmningmicOree`ah

Keneric KavernhentZrmhiry Licinge

Gitekary 9 Gitekary < exp(l) Z>|z| exp(l) Z>|z| exp(l) Z>|z|

Weco-\uce Hirdet :.7?= :.96< 9.:70 :.:0< 97.707 :.066

Weco-\uce I`hmnmstritmve :.759 :.


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Pilce 7 gantmnue ̀

Gitekary 9 Gitekary <

WulnitmanicKavernhent @elt K@Z per Gipmti

WulnitmanicKavernhentExpen`mtures

exp(l) Z>|z| exp(l) Z>|z| exp(l) Z>|z|Zrafmlmte` Gaaperitmve :.7:7 :.7=< ;.:69 :.5=9

Zrafmlmte` Gentric \uce :.::: :.::: :.09< :.5


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Pilce 7 gantmnue ̀



Gitekary 9 Gitekary < exp(l) Z>|z| exp(l) Z>|z| exp(l) Z>|z|Gentric \uce Gaaperitmve


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Pilce 0 gantmnue ̀

Cmqum`Cmilmcmtmes Omningmic Oree`ah

WulnitmanicKavernhent

Zrmhiry Licinge

Gitekary 9 Gitekary < exp(l) Z>|z| exp(l) Z>|z| exp(l) Z>|z|Gentric \uce Weco-\uce :.9


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Pilce 0 gantmnue ̀

Cmqum`Cmilmcmtmes Omningmic Oree`ah

WulnitmanicKavernhent

Zrmhiry Licinge

Gitekary 9 Gitekary < exp(l) Z>|z| exp(l) Z>|z| exp(l) Z>|z|Hirdet Weco-\uce :.:95 :.:65 9.790 :.?5< :.;50 :.:5<

Hirdet I`hmnmstritmve :.:


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Pilce 0 gantmnue ̀



Gitekary 9 Gitekary < exp(l) Z>|z| exp(l) Z>|z| exp(l) Z>|z|Zrafmlmte` Gaaperitmve 9.09? :.::: :.:0? :.56< :.::: :.=97

Zrafmlmte` Gentric \uce 5.09? :.::: :.:97 :.076 9.5?0 :.0?6

Zrafmlmte` Weco-\uce 0.99? :.::: :.509 :.=97 :.::: :.769

Zrafmlmte` Hirdet 0.:9? :.::: :.:9= :.0;6 0.


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i`aptmnk eigf ippraigf estmhite` mn tfe omrst stike ire tfen use` mnstei` ao tfemrrespegtmve `uhhy virmilces mn tfe segan` stike ta estmhite equitman (9) usmnk i


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Pilce 5 gantmnue ̀

KHH(rekucitmans exakenaus)

KHH(rekucitmans en`akenaus)

9 < 7 0 5 ?

Wulnitmanic kavernhent`elt* seco-ruce

‗:.5;9*** ‗:.509*** :.::: :.::: :.::: :.:::(:.9


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Pilce 5 gantmnue ̀



9 < 7 0 5 ?

Zapucitman krawtf ‗:.


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Pfe resucts sukkest tfit tfe –kacèn ruce‘ in` mhpase` cmhmts an sulnitmanic larrawmnkin` èlt ire eoomgment mn rekucitmnk sulnitmanic larrawmnk in` mhpravmnk tfeeooegtmveness ao i lrai` virmety ao rekucitmans. Hareaver, wfen sulnitmanickavernhents five ta oige cekic singtmans oar nangahpcminge ta mhpase` omsgicruces, tfey hiy five letter omsgic peroarhinge. Pfe gaeoomgment oar tfms virmilce,fawever, sahetmhes sfaws na eooegt an tfe prmhiry licinge, wfmgf hiy le expcimne`ly tfe namse mn mts heisurehent. Mn oigt, cekic singtmans oar nangahpcminge ginle i`hmnmstritmve, omningmic, ar pacmtmgic, in` na `mstmngtman wis hiè letween tfehwfmce greitmnk tfms virmilce ùe ta lismg ìti cmhmtitmans. Kmven tfit nat icc types aosingtmans ire equiccy eoomgment, tfe estmhite` gaeoomgment an tfms virmilce hiy nat leralust. Omniccy, tfe resucts sukkest tfit iccawmnk sulnitmanic kavernhents ta enteroaremkn omningmic hirdets hiy ètermarite gauntrmes” omsgic peroarhinge. I passmlcereisan oar tfms ms tfit iggess ta tfe oaremkn omningmic hirdets hiy mngreise expasure taexternic sfagds.

I kreiter èpenènge an omningmnk orah tfe gentric kavernhent nekitmvecy iooegtstfe eooegtmveness ao rekucitmans lise` an omsgic ruces (espegmiccy seco-mhpase` ruces)

in` i`hmnmstritmve rekucitman. Pfms nekitmve eooegt ao mnterkavernhent trinsoers hiyle ùe ta haric fizir`, espegmiccy mn gise ao tfe i`hmnmstritmve rekucitman. Hareaver,fmkf èpenènge an mnterkavernhent trinsoers hiy le reùgmnk tfe eooegtmvenessao seco-mhpase` ruces tfraukf reùge` gahhmthent ta tfe ruces. An tfe atfer fin`,gaaperitmve in` hirdet-lise` rekucitmans seeh ta five pasmtmve eooegts an tfe prmhiryomsgic licinge mn tfe gise ao i fmkf èpenènge an trinsoers. Mn tfe gise ao gaaperitmverekucitmans, tfms eooegt hiy le expcimne` ly passmlce fmkfer trinspirengy, kmven tfitrepresentitmves ao icc kavernhent unmts gaaperitmvecy hide ̀ egmsmans an omsgic pacmgy.

Pfe pasmtmve eooegt ao hirdet-lise` rekucitmans an tfe prmhiry omsgic licinge mn tfegise ao fmkf omningmnk orah tfe gentric kavernhent lu`ket hiy le expcimne` mn tfeoaccawmnk hinner. Fmkf sulnitmanic èpenènge an mnterkavernhent trinsoers hiy

hide gre`mtars oeec hare gertimn tfit i larrawer hiy le hare cmdecy ta le limce` aut mngise ao èoiuct, in` ta ègmè ta cen` hare oun`s ta tfe larrawer. Pfms wauc` mngreisetfe mnèlte`ness ao tfe èltar in` mnterest an èlt, giusmnk tfe prmhiry licinge ta lefmkfer, kmven tfit mnterest piyhents ire nat mngcuè` mn tfe prmhiry licinge. Pferesucts icsa sukkest tfit i fmstary ao limcauts fis i very smknmomgint nekitmve eooegt antfe keneric kavernhent prmhiry licinge.

Mn tfe gise ao fmkf èpenènge an mnterkavernhent trinsoers, tfemr pre`mgtilmcmty seehsta five i pasmtmve eooegt an tfe keneric kavernhent prmhiry licinge. Pfe eooegt aopre`mgtilmcmty ao trinsoers an tfe prmhiry licinge, fawever, ms nat strimkftoarwir`. Iggar`mnk ta tfe resucts, ancy wfen tfe sfire ao mnterkavernhent trinsoers mn tfesulnitmanic tatic revenue ms it ceist 7:% àes tfemr pre`mgtilmcmty five i pasmtmve eooegt

an tfe prmhiry licinge. Pfe resucts icsa sukkest tfit sulnitmanic tix iutanahypasmtmvecy iooegts i gauntry”s avericc omsgic peroarhinge, espegmiccy wfen sulnitmanickavernhents recy cess an omningmnk orah tfe gentric kavernhent lu`ket in` hare anawn-saurge revenues.

0.; \esucts oar Wulnitmanic Kavernhent Omsgic Zeroarhinge

Mn tfe gise ao sulnitmanic kavernhent mnsacvengy, i kavernhent gin reigt mn ao tfeoaccawmnk tfree wiys. Omrst, tfe gentric kavernhent gin ègmè ta gaver tfe sulnitmanicomsgic mhlicinges (m.e., i limcaut). Wegan`, mt gin reèsmkn tfe tix in`/ar trinsoersysteh tfraukf wfmgf tfe sulnitmanic kavernhent regemves i cirker partman ao tfeavericc revenues gaccegte`. Pfmr`, tfe gentric kavernhent gin mknare tfe sulnitmanic

omsgic mhlicinges. \ekir`cess ao wfmgf aptman tfe gentric kavernhent gfaases, tfe

75


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avericc nitmanic omsgic licinge ms cmdecy ta ètermarite. Fawever, ta altimn i letter pmgtureilaut wfmgf ao tfese tfree sgenirmas ms hare cmdecy ta fippen, equitman (9) ms estmhiteìkimn, lut tfms tmhe, wmtf tfe sulnitmanic prmhiry licinge is tfe èpenènt virmilce.

Is tfe resucts mn Pilce ? sukkest, sulnitmanic èlt àes nat seeh ta iooegt tfe

sulnitmanic prmhiry licinge, geterms pirmlus. Hareaver, nane ao tfe lrai` types aosulnitmanic larrawmnk rekucitmans seehs ta five in eooegt an sulnitmanic prmhirylicinges mn tfe gise ao fmkf sulnitmanic èlt. Fawever, tfe –kacèn ruce‘ in` mhpase`cmhmts an sulnitmanic larrawmnk in` èlt seeh ta five i pasmtmve in` smknmomgint eooegtan tfe sulnitmanic prmhiry licinge.

Pilce ?2 Eooegt ao Wulnitmanic Larrawmnk an WulnitmanicKavernhent Zrmhiry Licinge



9 < 7 0 5 ?

Wulnitmanic kavernhentprmhiry licinge-9

:.?59*** :.;9;*** :.55


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Pilce ? gantmnue`



9 < 7 0 5 ?

Kacèn ruce ‗:.::5 ‗:.::?* ‗:.:9:*** ‗:.:9:*** ‗:.:9:***

(:.::7) (:.::7) (:.::0) (:.::7) (:.::7)

Wulnitmanic kavernhentèlt* kacèn ruce

:.:?0* :.:56 :.:69** :.:;7*** :.:6


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Pilce ? gantmnue`



9 < 7 0 5 ?

GLM :.::9 :.::9 :.::6 :.::0 :.::5 :.::0

(:.::;) (:.::;) (:.::6) (:.::;) (:.::?) (:.::;)

Limcaut :.::< :.::: ‗:.:90** ‗:.:96*** ‗:.:9;*** ‗:.:9;***

(:.::


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eooegtmveness ao larrawmnk rekucitmans, tfe –kacèn ruce‘ in` cmhmts an èlt in`larrawmnk pasmtmvecy iooegt tfe prmhiry licinge it icc cevecs ao kavernhent.

Fawever, an tfe questman ao wfmgf rekucitmans oar sulnitmanic kavernhent larrawmnkire hast eooegtmve, nane ao tfe lrai` types seeh ta five i smknmomgint `mregt eooegt an

tfe nirraw èomnmtman ao omsgic sustimnilmcmty it tfe sulnitmanic cevec. Pfms ms sahewfit aoi surprmsmnk resuct, kmven tfe ihaunt ao `msgussman in` eooart tfit fis kane mntasfipmnk `mooerent rekucitmans. Pfms nekitmve resuct sfmots tfe oagus ta wfit tfe mhpigthiy le ao tfe `mooerent rekucitmans an tfe avericc omsgic licinge ao i gauntry ta tfemhpigt ao tfe `mooerent omsgic lefivmars ao sulnitmanic kavernhents. Pfe gaaperitmvetype ao sulnitmanic larrawmnk rekucitmans seehs ta five i pasmtmve eooegt an mhpravmnkkeneric kavernhent omsgic peroarhinge, even mn tfe gise ao fmkf cevecs ao sulnitmanicèlt in` fmkf èpenènge an sulnitmanic kavernhents an mnterkavernhent trinsoers.

7=


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\EOE\ENGEW

Ilrihs, L. I., in` [. \. @aukin. 9=6?. Pfe Eooegts ao Ganstmtutmanic \estrimnts anKavernhentic Wpen`mnk. Zulcmg Gfamge 0=(


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Lurnsm`e, G.


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Oilazzm, O. B., P. @. Oilazzm, in` W. K. Oec`stemn. 9==5. Hunmgmpic Lan` ZartoacmaHinikehent. Lurr \m`ke, MC2 Mrwmn Zraoessmanic Zulcmsfmnk.

Oÿcsgfer, I.


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Bauhir`, M., in` Z. H. Danksru`.


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AEG@.


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Wgfictekker, G. I., in` C. Z. Oec`.

how well do subnational borrowing regulations work?

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