Loan price modelling for local governments using risk premium analysis Navarro-Galera, Andrés Rayo-Cantón, Salvador Lara-Rubio, Juan Buendía-Carrillo, Dionisio Loan pricing Probability of default Credit risk premium Local government Basel II Previous studies have highlighted the question of government loan interest as one of great current importance. Government borrowing levels are high, and reducing interest payments would generate savings to meet other spending needs and/or to lower taxation, thus supporting the sustainability of public finances. However, no previous study has presented a method for a local government to calculate its own credit risk and thus be in a position to negotiate lower interest rates on its borrowing. This article defines a financial model that enables local governments to estimate the interest rate payable on a bank loan, based on their credit risk premium, in accordance with the Basel II rules and the findings of our empirical study of large local governments. 2024-02-26T08:29:10Z 2024-02-26T08:29:10Z 2015 journal article Andrés Navarro-Galera, Salvador Rayo-Cantón, Juan Lara-Rubio & Dionisio Buendía-Carrillo (2015) Loan price modelling for local governments using risk premium analysis, Applied Economics, 47:58, 6257-6276, DOI: 10.1080/00036846.2015.1068924 https://hdl.handle.net/10481/89524 https://doi.org/10.1080/00036846.2015.1068924 eng http://creativecommons.org/licenses/by-nc-nd/4.0/ open access Attribution-NonCommercial-NoDerivatives 4.0 Internacional Taylor & Francis