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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]

  • Wolff, Guntram B

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.

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File URL: http://mpra.ub.uni-muenchen.de/11248/1/MPRA_paper_11248.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 11248.

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Date of creation: 2007
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Handle: RePEc:pra:mprapa:11248
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  1. 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.
  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, 08.
  3. Wyplosz, Charles, 2002. "Fiscal Policy: Institutions versus Rules," CEPR Discussion Papers 3238, C.E.P.R. Discussion Papers.
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