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Sustainability of local government debt: a case study of Austrian municipalities

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  • Johann Bröthaler

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  • Michael Getzner

    ()

  • Gottfried Haber

    ()

Abstract

Austrian municipalities face manifold challenges with respect the sustainability of their budgetary policies, especially concerning public (municipal) debt. On the one hand, municipalities are closely monitored and supervised by upper-level governments. Local borrowing is confined to pre-defined cases with respect to extra-ordinary expenditure. Both dimensions come close to constitute an at least soft debt limit (budget constraint) for municipalities. On the other hand, municipal discretion over expenditure and revenue is limited. In the current paper, we test whether municipalities’ budgetary policies were sustainable by means of an adapted version of Bohn’s (Q J Econ 113:949–963, 1998 ) sustainability test. We find that municipal debt limits were quite effective and resulted in stationary debt levels, and in significant and sufficient reactions of the municipal primary surplus to increasing public debt. However, in order to achieve such sustainable policies, municipalities have widely cut investments in local infrastructure. From a long-term perspective, such development is problematic with respect to the quality of available infrastructure. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Johann Bröthaler & Michael Getzner & Gottfried Haber, 2015. "Sustainability of local government debt: a case study of Austrian municipalities," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 42(3), pages 521-546, August.
  • Handle: RePEc:kap:empiri:v:42:y:2015:i:3:p:521-546
    DOI: 10.1007/s10663-014-9261-3
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    References listed on IDEAS

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    1. Dove, John A., 2014. "Financial markets, fiscal constraints, and municipal debt: lessons and evidence from the panic of 1873," Journal of Institutional Economics, Cambridge University Press, vol. 10(01), pages 71-106, March.
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    Cited by:

    1. Köppl–Turyna, Monika & Pitlik, Hans, 2018. "Do equalization payments affect subnational borrowing? Evidence from regression discontinuity," European Journal of Political Economy, Elsevier, vol. 53(C), pages 84-108.
    2. Florian Brugger & Joern Kleinert, 2017. "The strong increase of Austrian government debt in the Kreisky era: Austro-Keynesianism or just stubborn forecast errors?," Graz Economics Papers 2017-15, University of Graz, Department of Economics.
    3. repec:kap:empiri:v:46:y:2019:i:2:d:10.1007_s10663-017-9396-0 is not listed on IDEAS
    4. repec:gam:jsusta:v:11:y:2019:i:11:p:3065-:d:235807 is not listed on IDEAS

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