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International Tax and Public Finance

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29-05-2019

Modeling fiscal sustainability in dynamic macro-panels with heterogeneous effects: evidence from German federal states

Authors: Lars P. Feld, Ekkehard A. Köhler, Julia Wolfinger

Published in: International Tax and Public Finance | Issue 1/2020

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Abstract

This paper assesses fiscal sustainability of the 16 German Laender between 1950 and 2015. We extend Bohn’s (in: Neck and Sturm (eds) Sustainability of public debt, MIT Press, Cambridge, 2008) fiscal sustainability test by allowing for slope heterogeneity and cross-sectional dependence (CD) and apply this econometric model to the German Laender between 1950 and 2015. We find that fiscal policy on the level of the German Laender only partly meets fiscal sustainability criteria. Politicians have reacted significantly to increasing debt levels by increasing budget surpluses only since 1991. Long time-series evidence is not in support of a significant and positive reaction of increasing initial debt levels in every West German Land between 1950 and 2015.

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Title: Modeling fiscal sustainability in dynamic macro-panels with heterogeneous effects: evidence from German federal states
Authors: Lars P. Feld
Ekkehard A. Köhler
Julia Wolfinger
Publication date: 29-05-2019
Publisher: Springer US
Published in: International Tax and Public Finance / Issue 1/2020
Print ISSN: 0927-5940
Electronic ISSN: 1573-6970
DOI: https://doi.org/10.1007/s10797-019-09548-7

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