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The Political Economy of the German Länder Deficits

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  • Jochimsen, Beate
  • Nuscheler, Robert

Abstract

We analyze the deficits of the German Länder for the period from 1960 to 2000 and test a number of hypotheses derived from the literature on the political economy of public expenditures and public deficits. Estimating a dynamic panel data model, we find evidence for political opportunism of the Rogoff/Sibert-type. German voters seem to favor fiscal discipline as debt issue is significantly lower in pre-election years. There is no evidence for partisan behavior. Party ideology thus plays a negligible role. As suggested by the theory, coalition governments issue more debt. This effect is, however, not statistically significant. If the probability of reelection is small, the incumbent government may find it beneficial to issue more debt. We consider four different approximations of the reelection probability but find evidence for none of them.

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  • Jochimsen, Beate & Nuscheler, Robert, 2005. "The Political Economy of the German Länder Deficits," Discussion Papers 2005/6, Free University Berlin, School of Business & Economics.
    • Handle: RePEc:zbw:fubsbe:20056
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    Cited by:

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    2. Moessinger, Marc-Daniel, 2012. "Do personal characteristics of finance ministers affect the development of public debt?," ZEW Discussion Papers 12-068, ZEW - Leibniz Centre for European Economic Research.
    3. Ulrich Oberndorfer & Viktor Steiner, 2007. "Generationen‐ oder Parteienkonflikt? Eine empirische Analyse der deutschen Hochschulausgaben," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 8(2), pages 165-183, March.
    4. Lars P. Feld, 2010. "Sinnhaftigkeit und Effektivität der deutschen Schuldenbremse," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 11(3), pages 226-245, August.
    5. Niklas Potrafke, 2011. "Public Expenditures on Education and Cultural Affairs in the West German States: Does Government Ideology Influence the Budget Composition?," German Economic Review, Verein für Socialpolitik, vol. 12(1), pages 124-145, February.
    6. John Ashworth & Benny Geys & Bruno Heyndels, 2005. "Government Weakness and Local Public Debt Development in Flemish Municipalities," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 12(4), pages 395-422, August.
    7. Fay Dunkerley & Amihai Glazer & Stef Proost, 2010. "What Drives Gasoline Prices?," Working Papers 091005, University of California-Irvine, Department of Economics.
    8. Achten-Gozdowski, Jennifer, 2018. "Geschichte und Politökonomie deutscher Theatersubventionen [History and Political Economy of Public Subsidies for German Theatres and Operas]," MPRA Paper 85087, University Library of Munich, Germany.
    9. F. Holm-Hadulla & S. Hauptmeier & P. Rother, 2012. "The impact of expenditure rules on budgetary discipline over the cycle," Applied Economics, Taylor & Francis Journals, vol. 44(25), pages 3287-3296, September.
    10. Bönke, Timm & Jochimsen, Beate & Schröder, Carsten, 2011. "Fiscal equalization and regions' (un)willingness-to-tax: Evidence from Germany," Economics Working Papers 2011-06, Christian-Albrechts-University of Kiel, Department of Economics.
    11. Baskaran, Thushyanthan, 2013. "Coalition governments, cabinet size, and the common pool problem: Evidence from the German states," European Journal of Political Economy, Elsevier, vol. 32(C), pages 356-376.
    12. Marc-Daniel Moessinger, 2014. "Do the personal characteristics of finance ministers affect changes in public debt?," Public Choice, Springer, vol. 161(1), pages 183-207, October.
    13. Troeger, Vera & Schneider, Christina J., 2012. "Strategic Budgeteering and Debt Allocation," CAGE Online Working Paper Series 85, Competitive Advantage in the Global Economy (CAGE).
    14. Stegarescu, Dan, 2013. "Does expenditure composition influence the debt level? Evidence from German federal states," Discussion Papers 52/2013, Deutsche Bundesbank.
    15. Jochimsen, Beate & Thomasius, Sebastian, 2014. "The perfect finance minister: Whom to appoint as finance minister to balance the budget," European Journal of Political Economy, Elsevier, vol. 34(C), pages 390-408.
    16. Berger, Helge & Holler, Anika, 2007. "What determines fiscal policy? Evidence from German states," Discussion Papers 2008/12, Free University Berlin, School of Business & Economics.
    17. Bernd Hayo & Florian Neumeier, 2012. "Leaders’ Impact on Public Spending Priorities: The Case of the German Laender," Kyklos, Wiley Blackwell, vol. 65(4), pages 480-511, November.
    18. Niklas Potrafke, 2006. "Parties Matter in Allocating Expenditures: Evidence from Germany," Discussion Papers of DIW Berlin 652, DIW Berlin, German Institute for Economic Research.
    19. Wehner, Joachim, 2010. "Cabinet structure and fiscal policy outcomes," LSE Research Online Documents on Economics 28648, London School of Economics and Political Science, LSE Library.
    20. Oberndorfer, Ulrich & Steiner, Viktor, 2006. "Intergenerational Conflict, Partisan Politics, and Public Higher Education Spending: Evidence from the German States," IZA Discussion Papers 2417, Institute of Labor Economics (IZA).
    21. Ulrich Oberndorfer & Viktor Steiner, 2006. "Generationen- oder Parteienkonflikt?: Eine empirische Analyse der deutschen Hochschulausgaben," Discussion Papers of DIW Berlin 603, DIW Berlin, German Institute for Economic Research.
    22. Freye, Sabine, 2009. "Zum Zusammenhang zwischen der Verschuldung der Bundesländer und ihren finanziellen Handlungsspielräumen," IWH Discussion Papers 12/2009, Halle Institute for Economic Research (IWH).

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    More about this item

    Keywords

    Public Debt; Political Economy; German Länder; Dynamic Panel Data Model;
    All these keywords.

    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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