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What Determines Fiscal Policy? Evidence from German States

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  • Helge Berger
  • Anika Holler

Abstract

This paper explores the factors behind the time path of real spending and revenue in the West German states from 1975 to 2004. The empirical approach stresses robustness and takes into account a large set of economic and political variables. Our results suggest that common economic factors and, to a smaller degree, state-specific economic developments are important determinants of state fiscal performance. In comparison, the influence of political factors is limited both in statistical and quantitative terms. Finally, there is evidence that addressing governance problems and ensuring flexibility in terms of fiscal strategy are important ingredients for any policy aimed at improving fiscal outcomes at the state level.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2007/wp-cesifo-2007-07/cesifo1_wp2062.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2062.

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Date of creation: 2007
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Handle: RePEc:ces:ceswps:_2062

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Keywords: German Länder; fiscal policy; public spending; public debt; extreme bounds analysis; governance;

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  1. Torsten Persson & Guido Tabellini, . "Political Economics and Macroeconomic Policy," Working Papers 121, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  2. Peter Pedroni, 1999. "Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors," Department of Economics Working Papers 2000-02, Department of Economics, Williams College.
  3. Maddala, G S & Wu, Shaowen, 1999. " A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 631-52, Special I.
  4. Galli, Emma & Rossi, Stefania P S, 2002. " Political Budget Cycles: The Case of the Western German Lander," Public Choice, Springer, vol. 110(3-4), pages 283-303, March.
  5. Alberto Alesina & Roberto Perotti, 1994. "The Political Economy of Budget Deficits," NBER Working Papers 4637, National Bureau of Economic Research, Inc.
  6. Jochimsen, Beate & Nuscheler, Robert, 2007. "The political economy of the German Länder deficits," Discussion Papers, Research Unit: Market Processes and Governance SP II 2007-06, Social Science Research Center Berlin (WZB).
  7. Seitz, Helmut, 2000. " Fiscal Policy, Deficits and Politics of Subnational Governments: The Case of the German Laender," Public Choice, Springer, vol. 102(3-4), pages 183-218, March.
  8. Sala-i-Martin, Xavier, 1997. "I Just Ran Two Million Regressions," American Economic Review, American Economic Association, vol. 87(2), pages 178-83, May.
  9. Nouriel Roubini & Jeffrey Sachs, 1988. "Political and Economic Determinants of Budget Deficits in the IndustrialDemocracies," NBER Working Papers 2682, National Bureau of Economic Research, Inc.
  10. Niklas Potrafke, 2006. "Parties Matter in Allocating Expenditures: Evidence from Germany," Discussion Papers of DIW Berlin 652, DIW Berlin, German Institute for Economic Research.
  11. Choi, In, 2001. "Unit root tests for panel data," Journal of International Money and Finance, Elsevier, vol. 20(2), pages 249-272, April.
  12. Nordhaus, William D, 1975. "The Political Business Cycle," Review of Economic Studies, Wiley Blackwell, vol. 42(2), pages 169-90, April.
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Cited by:
  1. Maria Bas & Ivan Ledezma, 2007. "Market Access and the Evolution of within Plant Productivity in Chile," CESifo Working Paper Series 2077, CESifo Group Munich.
  2. Sven Jari Stehn & Annalisa Fedelino, 2009. "Fiscal Incentive Effects of the German Equalization System," IMF Working Papers 09/124, International Monetary Fund.

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