Debt rule federalism: The case of Germany
In 2009, Germany introduced a new debt rule in its federal constitution (Grundgesetz). The socalled 'debt brake' prescribes a balanced budget for both the federal level and the states. However, the states have leeway regarding transposition and specification of the national requirements into their own state constitutions and budgetary laws. This analysis presents a comprehensive comparison of the 16 state provisions. We develop an indicator which quantifies the stringency of state rules (Strength of Fiscal Rule Indicator). Two results emerge: First, despite the common constitutional rule at the federal level, the analysis reveals a considerable heterogeneity across German states. Second, several highly indebted states miss the chance to make their fiscal regime more credible. This finding corresponds to the disincentives of the German federation. Due to bailout-guarantees enshrined in German federalism, German states do not have incentives to impress bond markets through particularly strict budgetary rules.
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- Heinemann, Friedrich & Osterloh, Steffen & Kalb, Alexander, 2013.
"Sovereign risk premia: The link between fiscal rules and stability culture,"
ZEW Discussion Papers
13-016, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
- Heinemann, Friedrich & Osterloh, Steffen & Kalb, Alexander, 2014. "Sovereign risk premia: The link between fiscal rules and stability culture," Journal of International Money and Finance, Elsevier, vol. 41(C), pages 110-127.
- Osterloh, Steffen & Heinemann, Friedrich & Kalb, Alexander, 2013. "Sovereign risk premia: The link between fiscal rules and stability culture," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 80043, Verein für Socialpolitik / German Economic Association.
- Iara, Anna & Wolff, Guntram B., 2014.
"Rules and risk in the Euro area,"
European Journal of Political Economy,
Elsevier, vol. 34(C), pages 222-236.
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