Schuldenanstieg und Haftungsausschluss im deutschen Föderalstaat: Zur Rolle des Moral Hazard [Increasing debt and potential bail-out clauses in the German federation: on the role of moral hazard]
The paper discusses moral hazard problems as a potential reason for the observed strong increase of indebtedness of German states (Länder). Indeed, financial markets do not react much to the strong differences in fiscal fundamentals of German Länder. Using a case study, the paper also shows that this has not changed with the recent Berlin ruling. Overall, it therefore appears to be worthwhile to consider a reform that would entail stronger involvement of investors into risk of individual states. However, it is unlikely that this would prevent the build-up of large debt positions and compensate for the deficit bias of fiscal policy. Strict fiscal rules still appear necessary.
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number
11248.
Find related papers by JEL classification: E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management
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