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The political economy of the German Lander deficits: weak governments meet strong finance ministers

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  • Beate Jochimsen
  • Robert Nuscheler

Abstract

We analyse the deficits of the German Lander (regional states) for the period 1960 to 2005 and test a number of hypotheses derived from the literature on the political economy of public deficits. We find evidence for the weak government hypothesis, that is, coalition governments issue significantly more debt than single party governments - a result that is typically explained by the common pool problem. As our data suggest, this result crucially hinges on the position or strength of the finance minister within coalition governments. We find that coalition governments with a strong finance minister are - in terms of borrowing - not significantly different from single party governments. In addition, we find (weak) evidence for an opportunistic political business cycle. As borrowing is significantly lower in pre-election years it appears that German voters favour fiscal discipline. There is no evidence for partisan behaviour, so party ideology seems to play a negligible role.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 43 (2011)
Issue (Month): 19 ()
Pages: 2399-2415

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Handle: RePEc:taf:applec:v:43:y:2011:i:19:p:2399-2415

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Citations

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Cited by:
  1. Bernd Hayo & Florian Neumeier, 2012. "Leaders’ Impact on Public Spending Priorities: The Case of the German Laender," Kyklos, Wiley Blackwell, vol. 65(4), pages 480-511, November.
  2. Niklas Potrafke, 2013. "Economic Freedom and Government Ideology across the German States," Regional Studies, Taylor & Francis Journals, vol. 47(3), pages 433-449, March.
  3. Niklas Potrafke & Markus Reischmann, 2012. "Fiscal Equalization Schemes and Fiscal Sustainability," Ifo Working Paper Series Ifo Working Paper No. 141, Ifo Institute for Economic Research at the University of Munich.
  4. Salvador Barrios & Diego Martínez, 2014. "Fiscal equalisation schemes and sub-central government borrowing," Working Papers 1401, Universidade de Vigo, GEN - Governance and Economics research Network.
  5. Thomas Braendle, 2012. "Determinants of Employment in the Ministerial Bureaucracy," Working papers 2012/01, Faculty of Business and Economics - University of Basel.
  6. Björn Kauder & Benjamin Larin & Niklas Potrafke, 2014. "Was bringt uns die große Koalition? Perspektiven der Wirtschaftspolitik," Ifo Working Paper Series Ifo Working Paper No. 172, Ifo Institute for Economic Research at the University of Munich.
  7. Beate R. Jochimsen & Sebastian Thomasius, 2012. "The Perfect Finance Minister: Whom to Appoint as Finance Minister to Balance the Budget?," Discussion Papers of DIW Berlin 1188, DIW Berlin, German Institute for Economic Research.
  8. Bernd Hayo & Florian Neumeier, 2011. "Political Leaders’ Socioeconomic Background and Fiscal Performance in Germany," MAGKS Papers on Economics 201141, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  9. Timm Bönke & Beate Jochimsen & Carsten Schröder, 2013. "Fiscal Federalism and Tax Administration: Evidence from Germany," Discussion Papers of DIW Berlin 1307, DIW Berlin, German Institute for Economic Research.

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