Determinants of sub-sovereign government ratings in Europe

Abstract

[EN] The aim of this paper is to identify the determinants of the rating assigned to sub-sovereigns in Germany, Austria, Belgium, France, Italy and Spain, using a total of 92 territorial entities for the 1989-2012 period. Multinomial ordered probit estimation models were estimated for each specification and agency. We conclude that the country s rating is one of the most important determinants of regional governments ratings with a positive influence, as expected, and that the country debt/GDP ratio is a stronger determinant for regions than their own indebtedness with a negative sign. Other relevant variables are population growth rate, unemployment rate, elderly people weight, regional public expenditure weight and size. Additionally, economic variables, country s rating and population growth are more important to Fitch; whereas budget variables and size variables are more relevant to Moody s. Debt variables and elderly people ratio, are more important to S&P.