Depressing Dependence? Transfers and Economic Growth in the German States, 1975-2005

Thushyanthan Baskaran, Lars Feld and Sarah Necker

No 6055, CESifo Working Paper Series from CESifo

Abstract: Most countries pay substantial intergovernmental transfers to poor regions. Since these transfers are often paid with the aim of achieving regional convergence, they should have a positive effect on economic growth. However, it is equally possible that transfers perpetuate under-development by diminishing regional incentives to implement growth-enhancing policies. In this paper, we study empirically the effect of intergovernmental transfers on economic growth using the German federation as an institutional laboratory. Our findings, which are based on a panel dataset covering the West German States over the period 1975-2005, suggest that transfers are irrelevant or possibly even harmful for economic growth. The results of our analysis of transmission channels are consistent with the notion that transfers fail to foster growth because states use them to subsidize declining industries.

Keywords: intergovernmental transfers; economic growth; fiscal federalism (search for similar items in EconPapers)
JEL-codes: H70 H73 H77 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Depressing dependence? Transfers and economic growth in the German states, 1975–2005 (2017)
Working Paper: Depressing dependence? Transfers and economic growth in the German States, 1975-2005 (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_6055

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