Fiscal Supervision and the Soft Budget Constraint: Evidence from Germany

Désirée Christofzik and Sebastian Kessing

VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy from Verein für Socialpolitik / German Economic Association

Abstract: We study the effectiveness of local borrowing regulations in maintaining fiscal sustainability and the effect of supervision over municipal budgeting on local debt using a panel on municipalities in Germany's most populous state of North Rhine-Westphalia from 2003 to 2011. The identification strategy relies on a differences-in-differences approach and exploits the fact that a reform making it temporarily more likely to prevent financial supervision was implemented gradually across municipalities. We find that relaxing supervision temporarily leads to higher dept per capita.

JEL-codes: H72 H74 R10 (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc14:100315

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