French Local Government Borrowing’s Spatial Effects: A Spatial Panel Data Analysis of French Metropolitan Departments

Abstract

The aftermaths of the 2008 subprime crisis have modified financing channels of French local governments and led to regulation changes. Using a unique panel of the 96 French Metropolitan Departments covering 13 years between 2005 and 2017, this paper investigates the determinants of Departments’ borrowing using a spatial panel approach. Our estimates of a fixed-effects Spatial Durbin Model show that spatial determinants contribute to explain Departments’ financing decisions. The study exhibits the existence of a spatial multiplier effect that may influence the systemic risk of bankruptcy for French Department. In this context, the recent profound reshaping of the local financing sector should be considered with care paying attention to spatial interactions