The political economy of fiscal supervision and budget deficits: Evidence from Germany

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CEPIE Working Paper ; No. 02/17

Classification and Topics

• Classification: Wirtschaft ; National Deficit; Surplus ; State and Local Borrowing ; Intergovernmental Relations; Federalism; Secession
• Subject: Local government ; Budget deficits ; Fiscal supervision ; Partisan cycle

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Roesel, Felix
• Event: Veröffentlichung
• (who): Technische Universität Dresden, Center of Public and International Economics (CEPIE)
• (where): Dresden
• (when): 2017

Further information

• Handle: http://hdl.handle.net/10419/149560
• URN: urn:nbn:de:bsz:14-qucosa-217869
• Last update: 10.03.2025, 11:44 AM CET