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

Guntram Wolff

MPRA Paper from University Library of Munich, Germany

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.

Keywords: Moral hazard; fiscal federalism; sovereign bond markets (search for similar items in EconPapers)
JEL-codes: E62 H77 H74 H63 (search for similar items in EconPapers)
Date: 2007
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Persistent link: http://EconPapers.repec.org/RePEc:pra:mprapa:11248

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