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Fiscal Sustainability of the German Länder: Time-Series Evidence

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  • Heiko T. Burret
  • Lars P. Feld
  • Ekkehard A. Köhler

Abstract

We analyze the sustainability of public finances in the 16 states (Länder ) of the Federal Republic of Germany, using an unprecedentedly comprehensive fiscal data set covering the period from 1950 to 2011 for West German Länder and from 1991 to 2011 for East German Länder . We extend the existing literature in that we apply unit-root and stationarity tests not only to debt but also to expenditure and revenue and explore their long-run relation in cointegration analyses for each Land . The results provide evidence against strict fiscal sustainability in a majority of German Länder . A notable exception to this finding is Bavaria.

Suggested Citation

  • Heiko T. Burret & Lars P. Feld & Ekkehard A. Köhler, 2017. "Fiscal Sustainability of the German Länder: Time-Series Evidence," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 73(1), pages 103-132, March.
    • Handle: RePEc:mhr:finarc:urn:sici:0015-2218(201703)73:1_103:fsotgl_2.0.tx_2-r
    DOI: 10.1628/001522108X14864674910029
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    1. Peter Claeys & Raúl Ramos & Jordi Suriñach, 2008. "Fiscal sustainability across government tiers," International Economics and Economic Policy, Springer, vol. 5(1), pages 139-163, July.
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    4. Alfred Greiner & Uwe Koeller & Willi Semmler, 2006. "Testing the sustainability of German fiscal policy: evidence for the period 1960–2003," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 33(2), pages 127-140, June.
    5. Niklas Potrafke & Markus Reischmann, 2015. "Fiscal Transfers and Fiscal Sustainability," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 47(5), pages 975-1005, August.
    6. Greiner, Alfred & Kauermann, Göran, 2008. "Debt policy in euro area countries: Evidence for Germany and Italy using penalized spline smoothing," Economic Modelling, Elsevier, vol. 25(6), pages 1144-1154, November.
    7. Bohn, Henning, 1995. "The Sustainability of Budget Deficits in a Stochastic Economy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(1), pages 257-271, February.
    8. Bettina Fincke & Alfred Greiner, 2011. "Debt sustainability in Germany: empirical evidence for federal states," International Journal of Sustainable Economy, Inderscience Enterprises Ltd, vol. 3(2), pages 235-254.
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    Cited by:

    1. Burret, Heiko T. & Feld, Lars P. & Köhler, Ekkehard A., 2016. "(Un-)Sustainability of Public Finances in German Laender: A Panel Time Series Approach," Economic Modelling, Elsevier, vol. 53(C), pages 254-265.
    2. Feld Lars P. & Reuter Wolf Heinrich & Yeter Mustafa, 2019. "Öffentliche Investitionen: Die Schuldenbremse ist nicht das Problem," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 20(4), pages 292-303, December.
    3. Lars P. Feld & Martin Beznoska & Oliver Holtemöller & Hans-Peter Burghof & Ulrike Neyer & Clemens Fuest & Friedrich Heinemann & Thomas König, 2020. "Record Debts to Combat Covid-19 Consequences – What Can the State Afford?," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 73(08), pages 03-32, August.
    4. Lars P. Feld & Ekkehard A. Köhler & Julia Wolfinger, 2020. "Modeling fiscal sustainability in dynamic macro-panels with heterogeneous effects: evidence from German federal states," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(1), pages 215-239, February.
    5. Ludger Schuknecht & Holger Zemanek, 2018. "Social Dominance," Working Papers REM 2018/30, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    6. Ludger Schuknecht & Holger Zemanek, 2021. "Public expenditures and the risk of social dominance," Public Choice, Springer, vol. 188(1), pages 95-120, July.
    7. Feld, Lars P., 2018. "The quest for fiscal rules," Freiburg Discussion Papers on Constitutional Economics 18/09, Walter Eucken Institut e.V..
    8. Köhler, Ekkehard, 2015. "Fiscal Sustainability in Cross-Dependent Panels: Evidence from the German L nder," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113104, Verein für Socialpolitik / German Economic Association.
    9. Petkova, Kunka & Weichenrieder, Alfons, 2017. "Price and Quantity Effects of the German Real Estate Transfer Tax," VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168305, Verein für Socialpolitik / German Economic Association.
    10. Heiko T. Burret & Lars P. Feld & Kö & Ekkehard A. hler, 2014. "Panel Cointegration Tests on the Fiscal Sustainability of German Laender," CESifo Working Paper Series 4929, CESifo.
    11. Gebhard Kirchgässner, 2017. "The debt brake of the German states: a faulty design?," Constitutional Political Economy, Springer, vol. 28(3), pages 257-269, September.

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    More about this item

    Keywords

    fiscal sustainability; federalism; unit root; cointegration; public debt;
    All these keywords.

    JEL classification:

    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures

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