Growing Like Germany: Local Public Debt, Local Banks, Low Private Investment

Iryna Stewen, Mathias Hoffmann and Michael Stiefel

No 15912, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Over 2010-2016, municipal debt in Germany crowded out private investment worth 1 percent of GDP. Forced to lend to municipalities by their statutes, local public banks compensated for declining municipal-debt yields by charging higher rates to firms in Germany's locally segmented credit markets. The ensuing crowding-out was made worse by increased municipal borrowing when expensive fiscal commitments were shifted from federal and state to the municipal levels following the introduction of the debt brake. Our results identify new channels through which low interest rates adversely affect real outcomes and locally segmented credit markets can amplify contractionary effects from fiscal austerity.

Keywords: Local public finance; Firm-level investment; Crowding-out; Fiscal austerity; Global and intra-european imbalances (search for similar items in EconPapers)
JEL-codes: E62 F21 F32 G21 H32 (search for similar items in EconPapers)
Date: 2021-03
New Economics Papers: this item is included in nep-ban and nep-mac
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Citations: View citations in EconPapers (7)

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Related works:
Working Paper: Growing like Germany: local public debt, local banks, low private investment (2023)
Working Paper: Growing like Germany: Local public debt, local banks, low private investment (2022)
Working Paper: Growing Like Germany: Local Public Debt, Local Bank, Low Private Investment (2021)
Working Paper: Growing Like Germany: Local Public Debt, Local Banks, Low Private Investment (2021)
Working Paper: Growing Like Germany: Local Public Debt, Local Banks, Low Private Investment (2021)
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