| Grounded in the theories of fiscal federalism, information asymmetries, and financial intermediation, this research develops a model of municipal credit system transformation from one that is relationship-based to one that is market-based. The premise holds that transformation is guided by changes of elements of contractability and transparency, and then supply of capital. Changes in those elements affect the characteristics and roles of financial intermediation, which affect movement toward a market-based system.; To determine the model's appropriateness, the Brazilian municipal credit system is analyzed through a combination of quantitative and qualitative analysis. The research identifies a series of reform efforts, by the national government, the local governments, and lenders, that are characterized as changes to contractability, transparency, and capital supply. Moreover, the research quantitatively tests the relationship between the allocation and cost of credit and a series of political, economic, and financial management variables.; The results yield signs that the Brazilian municipal credit system is in a state of transformation, and that the transformation is consistent with the model's projections. It is assumed that the system is beginning to show signs that credit allocation and cost are commensurate with borrower risk. The transformation, however, is nascent. |
