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The political economy of the German Länder deficits: weak governments meet strong finance ministers
[journal article]
Abstract We analyze the deficits of the German Länder (regional states) for the period from 1960 to 2005 and test a number of hypotheses derived from the literature on the political economy of public deficits. We find evidence for the weak government hypothesis, that is, coalition governments issue significa... view more
We analyze the deficits of the German Länder (regional states) for the period from 1960 to 2005 and test a number of hypotheses derived from the literature on the political economy of public deficits. We find evidence for the weak government hypothesis, that is, coalition governments issue significantly more debt than single party governments – a result that is typically explained by the common pool problem. As our data suggest, this result crucially hinges on the position or strength of the finance minister within coalition governments. We find that coalition governments with a strong finance minister are – in terms of borrowing – not significantly different from single party governments.. In addition we find (weak) evidence for an opportunistic political business cycle. As borrowing is significantly lower in pre-election years it appears that German voters favor fiscal discipline. There is no evidence for partisan behavior; so, party ideology seems to play a negligible role.... view less
Classification
Economic Policy
Public Finance
Free Keywords
Public Deficit; German Länder; Political Economy; Dynamic Panel Data Model; Weak Governments; Strong Finance Ministers
Document language
English
Publication Year
2010
Page/Pages
35 p.
Journal
Applied Economics (2010)
DOI
https://doi.org/10.1080/00036840903194246
Status
Postprint; peer reviewed
Licence
PEER Licence Agreement (applicable only to documents from PEER project)