Eastern and Central EuropeCzech Republic
Unfettered local borrowing powers prove illusory without credible investor security and effective market regulation.
João Carmo Oliveira and Jorge Martinez-Vazquez
The case of the Czech Republic illustrates the difficulties of bal-
ancing liberal subnational borrowing provisions with the practi-
cal realities of developing sufficient regulation and oversight of
local finances—regulation and oversight needed to maintain
macroeconomic stability and a functioning subnational credit
The Czech government has not carried decentralization far. One
problem has to do with size and wealth. While a few large cities
have substantial own-source revenues, most local governments
are smalt and heavily dependent on the central government.
Changes under way should lead to greater decentralization.
The Czech Constitution declares municipal borrowing a legally
protected right, but having a right to access credit and having
an effective framework for doing so are two different things. An