Bailouts and austerity

Thushyanthan Baskaran

No 212, University of Göttingen Working Papers in Economics from University of Goettingen, Department of Economics

Abstract: This paper studies with disaggregated budget data how expenditures, revenues, and borrowing evolve in municipalities that receive bailouts. It asks whether higher-level governments enforce austerity measures after bailing out indebted municipalities. The sample consists of 421 municipalities in the German federal state of Hesse over the 1997-2010 period. The results indicate that municipalities cut personnel, construction, and social expenditures, increase tax revenues and property tax rates, and reduce deficits after they receive a bailout from the state government. The state government appears to be both able and willing to enforce austerity after granting a bailout.

Keywords: subnational bailouts; soft budget constraints; local fiscal policy (search for similar items in EconPapers)
JEL-codes: H30 H74 H77 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-pbe
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cegedp:212

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