The political economy of fiscal supervision and budget deficits: Evidence from Germany
Felix Roesel ()
No 02/17, CEPIE Working Papers from Technische Universität Dresden, Center of Public and International Economics (CEPIE)
In many federal countries, local governments run large deficits, even when fiscal supervision by state authorities is tight. I investigate to which extent party alignment of governments and fiscal supervisors influences budget deficits. The dataset includes 427 German local governments for the period 2000-2004. I exploit a period after a far-reaching institutional reform that entirely re-distributed political powers on both the government level and the fiscal supervisor level. Results do not show that party alignments of governments and supervisors (co-partisanship) drive short-term deficits. Instead, I find that the ideology of partisan governments and supervisors matters: left-wing local governments run higher deficits than their right-wing counterparts; left-wing supervisors tolerate higher deficits than right-wing supervisors. These findings imply that political independence for fiscal supervisors is recommended.
Keywords: Local government; Budget deficits; Fiscal supervision; Partisan cycle (search for similar items in EconPapers)
JEL-codes: H62 H74 H77 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-pbe, nep-pol and nep-ure
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Journal Article: The Political Economy of Fiscal Supervision and Budget Deficits: Evidence from Germany (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:tudcep:0217
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