Does Expenditure Composition Influence the Debt Level? Evidence from German Federal States

35 Pages Posted: 21 Jun 2016

See all articles by Dan Stegarescu

Dan Stegarescu

Center for European Economic Research (ZEW)

Date Written: 2013

Abstract

Despite strongly equalized per capita revenue and similar budgetary institutions, fiscal performance is increasingly diverging across German federal states. Given that state and local governments are endowed with expenditure autonomy, this paper investigates whether the composition of sub-national government expenditure has an impact on the degree of indebtedness. A panel analysis for the 1974-2010 period indicates that aside from socio-economic and political factors, the budget structure plays an important role. As expected, a higher ratio of government consumption to investment has a debt-augmenting effect, though, considered separately, larger budget shares of both investment and personnel expenditure are associated with lower debt. Particularly states spending more on transport and communication, and law and order are less indebted, while social spending has a detrimental effect on debt levels.

Keywords: public debt, expenditure composition, sub-national government, German states

JEL Classification: H72, H74, H77

Suggested Citation

Stegarescu, Dan, Does Expenditure Composition Influence the Debt Level? Evidence from German Federal States (2013). Bundesbank Discussion Paper No. 52/2013, Available at SSRN: https://ssrn.com/abstract=2796945

Dan Stegarescu (Contact Author)

Center for European Economic Research (ZEW) ( email )

P.O. Box 10 34 43
L 7,1 D-68161 Mannheim
Germany
+49 621 1235 167 (Phone)
+49 621 1235 215 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
34
Abstract Views
331
PlumX Metrics