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Empirical Studies on Public Debt and Fiscal Transfers

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  • Markus Reischmann

Abstract

This volume includes five self-contained chapters in the fields of public debt and fiscal transfer schemes. After an introduction to the topic, chapter 2 shows that the institutional setting of fiscal policy making needs to be considered when assessing the sustainability of fiscal policy. Using data for the U.S. and German state governments, the results of fiscal sustainability tests depend on whether fiscal transfers are taken into account. If fiscal transfers are not included in the primary surplus, the test results do not indicate that the U.S. and German state governments pursued sustainable fiscal policies. Chapter 3 examines whether the municipalities' voting behavior in state elections in a German state influenced the distribution of discretionary grants from the state level to the municipalities. The results show that discretionary grants were awarded to municipalities with many core supporters of the incumbent state government. In Chapter 4, a test on explosive time-series behavior is applied to the Target balances of the German Bundesbank. Chapter 5 examines whether electoral motives in OECD countries influenced “creative accounting” by the governments as measured by stock-flow adjustments (the difference between budget deficits and the change in public debt). Governments can engage in creative accounting to hide borrowing and sugarcoat the budget balance. The results show that stock-flow adjustments increased before elections. In Germany, stock-flow adjustments chiefly occurred via the creation of off-budget special funds that governments can use to finance public activities outside the core budget. Chapter 6 describes special funds in Germany and elaborates upon the purposes for which special funds were established. It discusses the extent to which the new German debt brake limits the borrowing of special funds and explains how the debt brake can be circumvented by using special funds.

Suggested Citation

  • Markus Reischmann, 2016. "Empirical Studies on Public Debt and Fiscal Transfers," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 63, January.
  • Handle: RePEc:ces:ifobei:63
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    Keywords

    Public debt; fiscal sustainability; institutions; fiscal transfers; intergovernmental grants; discretionary grants; fiscal equalization; hidden debt; creative accounting; stockflow adjustments; electoral motives; political business cycles.;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
    • P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism

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