BUDGET RESPONSIBILITY AND FISCAL DISCIPLINE IN LOCAL DEBT MANAGEMENT

This paper studies the relationship between local public debt and fiscal policy, bringing in particular the arguments which come to strengthen that in the context of the great recession from 2008 and of the need for sustainable public finance, all the rules in force that include limitations on the amount of borrowing and/or debt service, restrictions on the purpose of debt and on borrowing from national and international financial institutions and/or from the central bank, need to be strongly stipulated with the objective of budget responsibility and fiscal discipline. Basically, in our analysis, we want to build a research that stressed the importance of interplay between the variables involved, with the objective of public finance stability and capacity to manage high vulnerability of local governments to adverse changes in market interest rates. For our analysis, we will use the Eurostat and World Bank's databases for all the EU 28 member states over the time span 2000-2014. Our results reveal that there is a significant relationship between the level of local debt, budget responsibility and budget discipline, and the international financial instability, has increased the importance of financial sector policies. Recently implemented reforms aiming to enforce fiscal discipline following-up the Fiscal Compact strengthened the local budgetary framework and restrained, therefore, local discretionary power to act towards development. So, countries need strong macro-prudential policy frameworks responsibility and discipline in local debt management.