Debt Rule Federalism: The Case of Germany

37 Pages Posted: 12 Oct 2012

See all articles by Sarah Ciaglia

Sarah Ciaglia

affiliation not provided to SSRN

Friedrich Heinemann

ZEW – Leibniz Centre for European Economic Research; University of Heidelberg - Alfred Weber Institute for Economics

Date Written: 2012

Abstract

In 2009, Germany introduced a new debt rule in its federal constitution (Grundgesetz). The socalled ‘debt brake’ prescribes a balanced budget for both the federal level and the states. However, the states have leeway regarding transposition and specification of the national requirements into their own state constitutions and budgetary laws. This analysis presents a comprehensive comparison of the 16 state provisions. We develop an indicator which quantifies the stringency of state rules (Strength of Fiscal Rule Indicator). Two results emerge: First, despite the common constitutional rule at the federal level, the analysis reveals a considerable heterogeneity across German states. Second, several highly indebted states miss the chance to make their fiscal regime more credible. This finding corresponds to the disincentives of the German federation. Due to bailout-guarantees enshrined in German federalism, German states do not have incentives to impress bond markets through particularly strict budgetary rules.

Keywords: Fiscal rules, debt brake, Germany, fiscal federalism

JEL Classification: H63, H74, H77

Suggested Citation

Ciaglia, Sarah and Heinemann, Friedrich, Debt Rule Federalism: The Case of Germany (2012). ZEW - Centre for European Economic Research Discussion Paper No. 12-067, Available at SSRN: https://ssrn.com/abstract=2160299 or http://dx.doi.org/10.2139/ssrn.2160299

Sarah Ciaglia

affiliation not provided to SSRN ( email )

Friedrich Heinemann (Contact Author)

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

HOME PAGE: http://www.zew.de

University of Heidelberg - Alfred Weber Institute for Economics ( email )

Grabengasse 14
Heidelberg, D-69117
Germany

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