Subnational government bailouts in Germany

The paper presents an investigation of subnational government bailouts in Germany. In a first part we briefly describe the fiscal federalism system in Germany. The main part of the paper examines the bailout of two West German states. We identify the causes of the financial trouble of both states and examine the institutional settings that forced the federal government to provide bailout transfers. In addition, we investigate the impact these transfers had on the fiscal performance of both Länder. In a further section we provide evidence on bailouts of local governments by the German Länder. A final section summarizes our results and presents policy conclusions. --

The impact of the provision of public infrastructures on regional economic development in Germany

The present paper presents an analysis of the impact of public infrastructure capital on regional economic developments in Germany. After presenting some descriptive statistical data on the economies of the 11 regions in (West) Germany a simple theoretical model of a cost-minimizing firm is presented in which the stock of public capital is included as a proxy for public services provided to firms as a fixed unpaid factor of production. Duality theory is used to recover the productivity effects of public infrastructures by calculating the cost-saving effects that are associated with public services. It is shown that these cost-saving effects work their way through adjustments in the demand for private inputs. Using a translog cost 'function we present panel estimates for the 11 federal states of (West) Germany with labour, structures and equipment as private factors of production. The results strongly indicate that public capital formation encourages private investment. In addition, it is demonstrated empirically that with respect to private capital a distinction between structures and equipment is of crucial importance because the effects on the former are of far greater importance than the effects on the latter. --

Public capital and the demand for private inputs

The paper investigates the impact the provision of public capital has on the demand for private capital and labour using a cost function with public capital included as a fixed unpaid factor of production. Special attention is paid to the examination of the influence tax vs. debt financing of public investment might have on the demand for private capital. The model is applied to a panel of 31 2-digit industries of the West German manufacturing industry. It is shown, that private and public capital are complements whereas a substitutive relation emerges for labour and public capital. Decomposing the adjustment of the demand for private labour and capital reveals a stabilizing but steadily decreasing impact of public capital on private inputs. --

Subnational Bailouts in Germany

This paper presents an investigation of subnational government bailouts in Germany. In the first part we briefly describe the system of fiscal federalism in Germany. The main part of the paper examines the bailout of two West German states. We identify the causes of the financial crisis in both states and examine the institutional settings as well as the ruling of the Constitutional Court that forced the federal government to provide bailout transfers. In addition, we investigate the impact these transfers had on the fiscal performance of both states. In a further section we provide evidence on bailouts of local governments by German states. A final section summarizes our results and presents policy conclusions.

Minimum Standards, Fixed Costs and Taxing Autonomy of SubnationalGovernments

The paper examines the question how fiscally strong and fiscally weak states respond to taxing autonomy at the state level, a subject that is currently under debate in Germany where states do have virtually no power to tax. We use a simple theoretical model that incorporates state surtaxes on the federal income tax bill taking into account fixed costs as well as minimum standards for the provision of public services. We show that both factors work in the direction of forcing fiscally weak states to collect higher surtaxes as compared to fiscally strong states. The empirical section presents evidence on the importance of fixed costs at the state level and calculates the distributional effects of taxing autonomy taking feedbacks of the fiscal equalization system into account. In addition simple estimates of the importance of spending on minimum standards are derived.fiscal federalism, minimum standards, tax autonomy, fiscal equalization

Democratic participation and the size of regions: an empirical study using data on German counties

The paper examines the relation between political participation and the size of regions taking German counties as observational units. The paper makes several contributions to the literature. To begin with, we measure political participation along two dimensions namely voter turnout, which is the most common variable used in empirical studies, and the number of candidates that run for a seat in county parliaments, a variable that has to the best of our knowledge never been examined at the local level. In addition, we fill a research gap because the issue of size and democracy has not been systematically investigated for Germany up to the present. It is shown, that the size of regions has a rather modest effect upon voter turnout and that active political participation is positively related - with however weak statistical significance - with the size of regions. In addition our results shed some further light on the importance of the educational attainment of the electorate on political participation. Our results indicate a strong positive impact of human capital on turnover. Based on the data presented and the results of our estimates we hypothesize that there is a hierarchy of elections on top of which are federal parliament elections whereas local and even state elections seem to be of much inferior interest to the electorate

Public capital and the demand for private inputs

The paper investigates the impact the provision of public capital has on the demand for private capital and labour using a cost function with public capital included as a fixed unpaid factor of production. Special attention is paid to the examination of the influence tax vs. debt financing of public investment might have on the demand for private capital. The model is applied to a panel of 31 2-digit industries of the West German manufacturing industry. It is shown, that private and public capital are complements whereas a substitutive relation emerges for labour and public capital. Decomposing the adjustment of the demand for private labour and capital reveals a stabilizing but steadily decreasing impact of public capital on private inputs

Demographic Change and Public Sector Budgets in a Federal System

This paper examines the effects of demographic change on public finances in a federal system. We develop a simple methodical procedure to measure the effect of demographic changes on public revenues and expenditures. We apply our method to the local, state and federal government sector as well as on the social security system in Germany. Our results suggest that demographic change will lead to significant vertical fiscal imbalances between the different layers of government. In addition we show, that subnational governments can generate a demographic dividend whereas the social security system and the federal government have to carry an additional burden due to ageing.fiscal federalism, demographic change, sustainability of public finances

Demographic Change and Federal Systems: Some Preliminary Results for Germany

The paper examines the effects of demographic change on federal, state and local government expenditures in Germany. Public spending is decomposed into almost 30 categories (functions) and simple estimates of age cost profiles are derived. Using population forecasts and assuming timeinvariant age cost profiles we estimate the effects of the ageing of the Germany society on the level and structure of expenditures at the three layers of governments. Our results show that subnational governments - state and local governments - can expect demographic savings whereas the federal government will live to see a worsening of its fiscal stance. Thus one should expect that significant vertical expenditure imbalances will arise that - if institutional settings are left unchanged - will ask for an adjustment of revenue distribution within the federation. --Fiscal Federalism,Demographic Change,Vertical Fiscal Imbalances

Zur Quantifizierung des "Korb 2" im Rahmen des Solidarpakts II

Die ostdeutschen Länder erhalten in erheblichem Umfang Transferleistungen des Bundes und der EU zur Unterstützung des Aufbaus der öffentlichen Infrastruktur sowie zur Finanzierung gewerblicher Investitionsfördermaßnahmen und sonstiger wirtschaftsnaher Fördermaßnahmen wie z. B. im Bereich der Forschungs- und Innovationsförderung. Mit den hier präsentierten Berechnungen wird der Versuch unternommen, die „Korb 2“-Mittel, die im Rahmen des Solidarpakts II an die Ostflächenländer fließen sollen, zu quantifizieren.Öffentlicher Transfer; Infrastruktur; Infrastrukturpolitik; Infrastrukturinvestition; Neue Bundesländer