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Creative destruction and fiscal institutions: a long-run case study of three regions

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  • Lars Feld
  • Jan Schnellenbach
  • Thushyanthan Baskaran

Abstract

We analyze the rise and decline of the steel and mining industries in the regions of Saarland, Lorraine and Luxembourg. Our main focus is on the period of structural decline in these industries after the second world war. Differences in the institutional framework of these regions are exploited to analyze the way in which the broader fiscal constitution sets incentives for governments either to obstruct or to encourage structural change in the private sector. Our main result is that fiscal autonomy of a region subjected to structural change in its private sector is associated with a relatively faster decline of employment in the sectors affected. Contrary to the political lore, fiscal transfers appear not to be used to speed up the destruction of old sectors, but rather to stabilize them.
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  • Lars Feld & Jan Schnellenbach & Thushyanthan Baskaran, 2012. "Creative destruction and fiscal institutions: a long-run case study of three regions," Journal of Evolutionary Economics, Springer, vol. 22(3), pages 563-583, July.
    • Handle: RePEc:spr:joevec:v:22:y:2012:i:3:p:563-583
    DOI: 10.1007/s00191-011-0264-y
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    Citations

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    Cited by:

    1. Burret, Heiko Tobias & Bury, Yannick & Feld, Lars P., 2018. "Grenzabschöpfungsraten im deutschen Finanzausgleich," Freiburg Discussion Papers on Constitutional Economics 18/04, Walter Eucken Institut e.V..
    2. Burret, Heiko T. & Feld, Lars P. & Schaltegger, Christoph A., 2022. "Fiscal federalism and economic performance new evidence from Switzerland," European Journal of Political Economy, Elsevier, vol. 74(C).
    3. Thushyanthan Baskaran & Lars P. Feld & Jan Schnellenbach, 2016. "Fiscal Federalism, Decentralization, And Economic Growth: A Meta-Analysis," Economic Inquiry, Western Economic Association International, vol. 54(3), pages 1445-1463, July.
    4. Thushyanthan Baskaran & Lars P. Feld & Sarah Necker, 2017. "Depressing dependence? Transfers and economic growth in the German states, 1975–2005," Regional Studies, Taylor & Francis Journals, vol. 51(12), pages 1815-1825, December.
    5. Bury, Yannick & Feld, Lars P. & Burret, Heiko Tobias, 2021. "Skimming the achieved? Quantifying the fiscal incentives of the German fiscal equalization scheme and its reforms since 1970," Freiburg Discussion Papers on Constitutional Economics 21/04, Walter Eucken Institut e.V..
    6. Pankaj C. Patel, 2022. "Recentralization and self‐employment: A quasi‐natural experiment in Switzerland," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(5), pages 1379-1402, July.
    7. Bofinger, Peter & Schnabel, Isabel & Feld, Lars P. & Schmidt, Christoph M. & Wieland, Volker, 2014. "Mehr Vertrauen in Marktprozesse. Jahresgutachten 2014/15," Annual Economic Reports / Jahresgutachten, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, volume 127, number 201415.
    8. Thushyanthan Baskaran & Lars P. Feld & Jan Schnellenbach, 2014. "Fiscal Federalism, Decentralization and Economic Growth: Survey and Meta-Analysis," CESifo Working Paper Series 4985, CESifo.
    9. Berumen, Sergio A., 2012. "Evaluación del impacto de la política de incentivos sectoriales en el desarrollo de los municipios mineros de Castilla y León," Journal of Economics, Finance and Administrative Science, Universidad ESAN, vol. 17(33), pages 15-30.
    10. Aadil Ahmad Ganaie & Sajad Ahmad Bhat & Bandi Kamaiah & N. A. Khan, 2018. "Fiscal Decentralization and Economic Growth: Evidence from Indian States," South Asian Journal of Macroeconomics and Public Finance, , vol. 7(1), pages 83-108, June.

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    More about this item

    Keywords

    Structural change; Fiscal federalism; Grants in aid; Creative destruction; E63; E64; H77; H54;
    All these keywords.

    JEL classification:

    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • E64 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Incomes Policy; Price Policy
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures

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