The Implementation of Fiscal Regulation: Insights from Germany

The fiscal regulation of local governments has a long tradition in Germany and is, theoretically, rather strict. The municipal budget law of German states clearly prescribes balanced budgets, monitoring and enforcement instruments as well as a dense structure of supervision. Nonetheless, the implementation of fiscal regulation has proven to be difficult and insufficient and has triggered academic discussion and organisational reforms in recent years. This chapter explores the question of how financial regulation is implemented in German local governments and the related obstacles it has had to overcome. The empirical analysis in this chapter triangulates documentary analyses, financial data, expert interviews and surveys with local treasurers and regulators. Our analysis reveals patterns; however, it does not allow for clear causal conclusions, as financial regulation often takes a case-by-case character. Regardless, this research opens avenues for better implementation approaches, such as the training of regulators, more central organisational structures of regulatory bodies and a change in regulatory strategy shifting towards the early identification of budget crises.