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Schuldenanstieg und Haftungsausschluss im deutschen Föderalstaat: Zur Rolle des Moral Hazard
[Increasing debt and potential bail-out clauses in the German federation: on the role of moral hazard]

Author

Listed:
  • Wolff, Guntram B

Abstract

The paper discusses moral hazard problems as a potential reason for the observed strong increase of indebtedness of German states (Länder). Indeed, financial markets do not react much to the strong differences in fiscal fundamentals of German Länder. Using a case study, the paper also shows that this has not changed with the recent Berlin ruling. Overall, it therefore appears to be worthwhile to consider a reform that would entail stronger involvement of investors into risk of individual states. However, it is unlikely that this would prevent the build-up of large debt positions and compensate for the deficit bias of fiscal policy. Strict fiscal rules still appear necessary.

Suggested Citation

  • Wolff, Guntram B, 2007. "Schuldenanstieg und Haftungsausschluss im deutschen Föderalstaat: Zur Rolle des Moral Hazard
    [Increasing debt and potential bail-out clauses in the German federation: on the role of moral hazard]
    ," MPRA Paper 11248, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:11248
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    File URL: https://mpra.ub.uni-muenchen.de/11248/1/MPRA_paper_11248.pdf
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    References listed on IDEAS

    as
    1. Wyplosz, Charles, 2002. "Fiscal Policy: Institutions versus Rules," CEPR Discussion Papers 3238, C.E.P.R. Discussion Papers.
    2. Kirsten H. Heppke‐Falk & Guntram B. Wolff, 2008. "Moral Hazard and Bail‐Out in Fiscal Federations: Evidence for the German Länder," Kyklos, Wiley Blackwell, vol. 61(3), pages 425-446, August.
    3. Charles Wyplosz, 2005. "Fiscal Policy: Institutions versus Rules," National Institute Economic Review, National Institute of Economic and Social Research, vol. 191(1), pages 64-78, January.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Moral hazard; fiscal federalism; sovereign bond markets;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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