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Integrating land financing into subnational fiscal management (English)

Land assets have become an important source of financing capital investments by subnational governments in developing countries. Land assets, often with billions of dollars per transaction, rival and sometimes surpass subnational borrowing or fiscal transfers for capital spending. While reducing the uncertainty surrounding future debt repayment capacity, the use of land-based revenues for financing infrastructure can entail substantial fiscal risks. Land sales often involve less transparency than borrowing. Many sales are conducted off-budget, which makes it easier to divert proceeds into operating budgets. Capital revenues from sales of land assets exert a much more volatile trend and could create an incentive to appropriate auction proceeds for financing the operating budget, particularly in times of budget shortfalls during economic downturns. Furthermore, land collateral and expected future land-value appreciation for bank loans can be linked with macroeconomic risks. It is critical to develop ex ante prudential rules comparable to those governing borrowing, to reduce fiscal risks and the contingent liabilities associated with the land-based revenues for financing infrastructure.

Details

  • Author

    Kaganova,Olga, Peterson,George E.

  • Document Date

    2010/08/01

  • Document Type

    Policy Research Working Paper

  • Report Number

    WPS5409

  • Volume No

    1

  • Total Volume(s)

    1

  • Country

    World,

  • Region

    The World Region,

  • Disclosure Date

    2010/08/31

  • Disclosure Status

    Disclosed

  • Doc Name

    Integrating land financing into subnational fiscal management

  • Keywords

    public land ownership;Poverty Reduction & Economic Management;land asset;financing of infrastructure investment;market value of land;increase in land value;aspect of debt;framework for risk management;foreign exchange regulation;Subnational Debt;land transaction;land sale;fiscal risk;revenue from land;asian financial crisis;source capital;demand for land;urban land;source of revenue;public service provision;Subnational Debt Management;types of loan;public service delivery;sale of land;public sector entity;public land management;loan to municipality;national credit market;property tax system;urban land market;politics of reform;local property tax;credit rating agencies;property tax rate;fiscal management perspective;valuation of land;loss of revenue;Fiscal Risk Management;cost of land;types of finance;international capital flow;parcel of land;local government enterprise;prudent fiscal management;urban infrastructure finance;regional development authority;enforcement of regulation;urban land management;sum of money;urban development plan;global financial crisis;event of default;future revenue stream;property tax collection;national fiscal management;credit rating agency;standard of performance;national regulatory framework;amount of debt;intergovernmental fiscal framework;subnational government finance;availability of credit;allocation of grant;supply side;amount of land;revenue from sales;cost of capital;collateral for loan;terms of credit;fair market price;third party risk;purpose financial statements;accounting and reporting;types of debt;capital budget;land price;subnational fiscal;land parcel;systemic risk;land leasing;capital revenue;Capital Investments;public-private partnership;financial risk;management framework;prudential rule;hold land;municipal government;urban fringe;public authority;public property;finance infrastructure;capital spending;capital ratio;public use;future debt;Urban Planning;market pricing;economic efficiency;liability side;land development;public entity;property asset;public development;fiscal incentive;subnational budget;government property;auction proceeds;municipal borrowing;Public Infrastructure;government institution;property price;public domain;budget revenue;open access;local debt;urban investment;contingent liability;transparent reporting;subnational authority;contingent liabilities;financial dealing;Financial Sector;debt service;financial value;private property;budget shortfall;Subnational Finance;fiscal control;alternative use;market valuation;repayment capacity;Urban Capital;land disposition;government building;private domain;fiscal finance;land banking;risky borrower;metropolitan government;long-term borrowing;risk assessment;expenditure reform;public asset;loan ratio;sale proceeds;golden rule;fiscal aspects;subnational creditworthiness;provincial debt;national regulation;land policies;bond issuance;intergovernmental relation;unfair advantage;institutional risk;debt issue;state bank;debt covenant;land policy;fiscal condition;Political Economy;debt ceilings;private company;government units;fiscal system;aggregate debt;rural land;macroeconomic deterioration;regulatory restriction;independent agency;land-use rights;land monopolist;spatial planning;finance strategy;public resistance;housing authority;land pricing;important policy;borrowing authority;market access;competitive market;potential buyers;excessive borrowing;public share;risk exposure;fixed supply;fiscal transfer;macroeconomic risk;policy priority;national policy;knowledge product;Fiscal Reform;land use;public ownership;sanitation department;regional pattern;government borrowing;Financing plans;local borrowing;pension obligation;government guarantee;budget borrowing;financial aspect;open water;asset base;fiscal transparency;metro rail;competitive auction;price discovery;alternative instruments;surplus property;opportunity cost;valuable asset;land right;public contribution;valuation technique;private parties;private party

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Citation

Kaganova,Olga Peterson,George E.

Integrating land financing into subnational fiscal management (English). Policy Research working paper ; no. WPS 5409 Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/173371468149668444/Integrating-land-financing-into-subnational-fiscal-management