Race to the debt trap? Spatial econometric evidence on debt in German municipalities
AbstractThrough an intertemporal budget constraint, jurisdictions may gain advantages in tax and spending competition by 'competing' on debt. While the existing spatial econometric literature focuses on tax and spending competition, very little is known about spatial interaction via public debt. This paper estimates the spatial interdependence of public debt among German municipalities using a panel on municipalities in the two largest German states from 1999 to 2006. We find significant and robust interaction effects between debt of neighboring municipalities, which we compare to spatial tax and spending interactions. The results indicate that a municipality increases its per capita debt by 16-33 Euro as a reaction to an increase of 100 Euro in neighboring municipalities. --
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Bibliographic InfoPaper provided by Free University Berlin, School of Business & Economics in its series Discussion Papers with number 2014/1.
Date of creation: 2014
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public debt; tax and spending competition; municipality data; spatial interactions; spatial panel estimation;
Other versions of this item:
- Frank M. Fossen & Ronny Freier & Thorsten Martin, 2014. "Race to the Debt Trap? Spatial Econometric Evidence on Debt in German Municipalities," Discussion Papers of DIW Berlin 1358, DIW Berlin, German Institute for Economic Research.
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
- H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
- H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing
- R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-02-02 (All new papers)
- NEP-GEO-2014-02-02 (Economic Geography)
- NEP-PBE-2014-02-02 (Public Economics)
- NEP-URE-2014-02-02 (Urban & Real Estate Economics)
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