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Regional fiscal equalization. A simultaneous equation approach to assess the economic effects of fiscal policy

Jonathan Eberle ()
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Jonathan Eberle: Department of Geography, Philipps University Marburg

No 2019-01, Working Papers on Innovation and Space from Philipps University Marburg, Department of Geography

Abstract: Regional fiscal equalization in Germany aims to reduce fiscal disparities by allocating financial resources to less promising regions in order to support the supply of public goods. This paper aims to analyse secondary economic effects of regional fiscal equalization on several economic in- and output variables. Additionally, the paper examines the potential regional characteristics to influence the transformation of fiscal inputs into economic outcomes. Lastly, I compare the effects of fiscal equalization to these of the major German structural funding program GRW. My findings reveal a significant positive effect of fiscal equalization on the regional employment rate. Moreover, the findings suggest different transmission channels of fiscal equalization in East and West Germany. Particularly, I find higher effects in right-wing CDU/CSU preferring regions on the employment, human capital and private-sector investment rate. Finally, while structural funding affects more economic variables significantly, the magnitude of the estimated economic responses of fiscal equalization compared to these of German structural funding are not statistically different.

Keywords: fiscal equalization; regional economic growth; production function; political ideology; SpPVAR; impulse response function (search for similar items in EconPapers)
JEL-codes: C33 E62 R11 R58 O38 O47 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2019-01
New Economics Papers: this item is included in nep-eur, nep-geo, nep-mac and nep-ure
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