Abstract
The volume of short-term liquidity credit (“Kassenkredit”) of the German municipalities has increased rapidly in the last two decades. This development suggests that this debt instrument has been diverted from its original purpose, namely as an instrument of bridging short-run liquidity shortfalls. In this paper we analyze the reasons for this development - from a legal and institutional perspective on the one hand, and from an economic perspective on the other hand. One key result of the analysis is that this development is partly due to the lacking intervention of municipal supervision institutions from the L¨ander (German Federal States). Obviously, the Länder tolerate the abuse of the Kassenkredit in order to avoid more open types of debt. In addition, we investigate how the introduction of the doubly-entry bookkeeping in the municipalities affects the (improper) use of short-term liquidity credits. Finally, we point to the potential of the municipal Kassenkredit as a loophole in the new German constitutional debt brake.
© 2014 by Walter de Gruyter GmbH & Co.
