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Fiscal Transfers and Fiscal Sustainability

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  • Niklas Potrafke
  • Markus Reischmann

Abstract

We examine whether US and German state governments pursue sustainable fiscal policies taking into account fiscal transfers. Using panel data techniques we investigate whether the debt-to-GDP ratio had a positive influence on the primary surplus (Bohn-model). We show that including/excluding fiscal transfers changes the results. If fiscal transfers are not included in the primary surplus, the test results do not indicate that the US and German state governments pursued sustainable fiscal policies. Our results also suggest that fiscal transfers were positively related with debt. These findings indicate that intergovernmental transfers have implicitly subsidized debts.

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  • Niklas Potrafke & Markus Reischmann, 2014. "Fiscal Transfers and Fiscal Sustainability," CESifo Working Paper Series 4716, CESifo.
    • Handle: RePEc:ces:ceswps:_4716
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    More about this item

    Keywords

    fiscal sustainability; public debt; institutions; fiscal transfers; panel data;
    All these keywords.

    JEL classification:

    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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