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Grant Dependence, Regulation and the Effects of Formula-based Grant Systems on German Local Governments: A Data Report for Saxony-Anhalt

  • Peter Haug

Recent empirical studies have found – seemingly − efficiency-enhancing effects of vertical grants on local public service provision. The main purpose of this paper is to prepare an elaborate theoretical and empirical analysis of these contradictory results. Therefore, it investigates if certain fiscal and institutional conditions (fiscal stress, fiscal rank-preserving vertical grant systems, input- and output regulation), that might help to explain these empirical findings, are characteristic of at least some parts of the local government sector or certain regions. The German state of Saxony-Anhalt is chosen for case study purposes. The main results are: First, the local governments suffer from severe fiscal problems such as high grant dependency, low tax revenues and the prevalent inability to finance investments by own resources. Second, the output- and input-regulation density of certain mandatory municipal services (schools, childcare facilities, fire protection) is high. Finally, the most important vertical grant category for local governments, the formula-based grants (“Schlüsselzuweisungen”), can be described as mainly exogenous, unconditional block grants that in most cases preserve the relative fiscal position of the grant recipients.

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Paper provided by Halle Institute for Economic Research in its series IWH Discussion Papers with number 2.

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Date of creation: Feb 2013
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Handle: RePEc:iwh:dispap:2-13
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  1. J. Kornai & E. Maskin & G. Roland., 2004. "Understanding the Soft Budget Constraint," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 12.
  2. Heikki A. Loikkanen & Ilkka Susiluoto, 2005. "Cost Efficiency of Finnish Municipalities in Basic Service Provision 1994-2002," ERSA conference papers ersa05p37, European Regional Science Association.
  3. M. Teresa Balaguer-Coll & Diego Prior, 2009. "Short- and long-term evaluation of efficiency and quality. An application to Spanish municipalities," Applied Economics, Taylor & Francis Journals, vol. 41(23), pages 2991-3002.
  4. De Borger, Bruno & Kerstens, Kristiaan, 1996. "Cost efficiency of Belgian local governments: A comparative analysis of FDH, DEA, and econometric approaches," Regional Science and Urban Economics, Elsevier, vol. 26(2), pages 145-170, April.
  5. Emili Tortosa Ausina & Diego Prior & María Teresa Balaguer-Coll, 2004. "On The Determinants Of Local Government Performance: A Two-Stage Nonparametric Approach," Working Papers. Serie EC 2004-04, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  6. Peter Bönisch & Peter Haug & A. Illy & L. Schreier, 2011. "Municipality Size and Efficiency of Local Public Services: Does Size Matter?," IWH Discussion Papers 18, Halle Institute for Economic Research.
  7. Moesen, Wim & van Cauwenberge, Philippe, 2000. " The Status of the Budget Constraint, Federalism and the Relative Size of Government: A Bureaucracy Approach," Public Choice, Springer, vol. 104(3-4), pages 207-24, September.
  8. Breton, Albert & Wintrobe, Ronald, 1975. "The Equilibrium Size of a Budget-maximizing Bureau: A Note on Niskanen's Theory of Bureaucracy," Journal of Political Economy, University of Chicago Press, vol. 83(1), pages 195-207, February.
  9. Ivo Bischoff & Peter Bönisch & Peter Haug & A. Illy, 2013. "Vertical Grants and Local Public Efficiency," IWH Discussion Papers 1, Halle Institute for Economic Research.
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