Are Public Debts of the German Federal States Influencing their Financial Scope?
Sabine Freye
IWH Discussion Papers,
No. 12,
2009
Abstract
Die Bundesländer haben sowohl einnahmen- als aus ausgabenseitig nur eng begrenzte finanzielle Handlungsspielräume. Aus dieser Situation heraus resultierte ein seit Jahr¬zehnten zu beobachtender Anstieg der öffentlichen Schulden. Gegenwärtig steht die Verschuldung der Bundesländer aufgrund der Beschlüsse der Föderalismuskommission II vom März 2009 erneut im Mittelpunkt des Interesses. Die Schuldenbremse beinhaltet die schrittweise erfolgende Rückführung der strukturellen Defizite sowie ein strukturelles Netto-neuverschuldungsverbot der Länder ab dem Jahr 2020. Auf kurze Sicht bedeuten diese Regelungen für die Mehrzahl der Länder eine Einschränkung ihrer finanziellen Hand-lungsspielräume. Der vorliegende Beitrag untersucht, inwieweit diese Spielräume zum gegenwärti¬gen Zeitpunkt in den einzelnen Ländern bestehen. Hierfür werden die Kreditmarkt-schulden je Einwohner sowie die Zins-Steuer- und Zins-Ausgaben-Quoten der Länder betrachtet. Es zeigt sich, dass die fünf Länder, die ab dem Jahr 2010 Konsolidierungs-zahlungen zum Abbau ihrer strukturellen Defizite erhalten werden, im Jahr 2006 im Länder-vergleich zumeist die geringsten finanziellen Handlungsspielräume aus¬wiesen. Die höchsten Belastungen verzeichneten die Stadtstaaten Berlin und Bremen.
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Shadow Budgets, Fiscal Illusion and Municipal Spending: The Case of Germany
Peter Haug
IWH Discussion Papers,
No. 9,
2009
Abstract
The paper investigates the existence of fiscal illusion in German municipalities with special focus on the revenues from local public enterprises. These shadow budgets tend to increase the misperception of municipal tax prices and seem to have been neglected in the literature. Therefore, an aggregated expenditure function has been estimated for all German independent cities applying an “integrated budget” approach, which means
that revenues and expenditures of the core budget and the local public enterprises are combined to one single municipal budget. The estimation results suggest that a higher relative share of local public enterprise revenues might increase total per capita spending as well as spending for non-obligatory municipal goods and services. Empirical evidence for other sources of fiscal illusion is mixed but some indications for debt illusion, renter illusion or the flypaper effect could be found.
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Growth, Volatility, and Credit Market Imperfections: Evidence from German Firms
Claudia M. Buch, Jörg Döpke
Journal of Economic Studies,
2008
Abstract
Purpose – The purpose of this paper is two-fold. First, it studies whether output volatility and growth are linked at the firm-level, using data for German firms. Second, it explores whether the link between volatility and growth depends on the degree of credit market imperfections.
Design/methodology/approach – The authors use a novel firm-level dataset provided by the Deutsche Bundesbank, the so-called Financial Statements Data Pool. The dataset has time series observations for German firms for the period 1997-2004, and the authors use information on the debt-to-assets or leverage ratio of firms to proxy for credit-constraints at the firm-level. As additional proxies for the importance of credit market imperfections, we use information on the size and on the legal status of firms.
Findings – The authors find that higher volatility has a negative impact on growth for small and a positive impact for larger firms. Higher leverage is associated with higher growth. At the same time, there is heterogeneity in the determinants of growth across firms from different sectors and across firms with a different legal status.
Practical implications – While most traditional macroeconomic models assume that growth and volatility are uncorrelated, a number of microeconomic models suggest that the two may be linked. However, it is unclear whether the link is positive or negative. The paper presents additional evidence regarding this question. Moreover, understanding whether credit market conditions affect the link between volatility and growth is of importance for policy makers since it suggests a channel through which the credit market can have long-run welfare implications. The results stress the importance of firm-level heterogeneity for the effects and effectiveness of economic policy measures.
Originality/value – The paper has two main novel features. First, it uses a novel firm-level dataset to analyze the determinants of firm-level growth. Second, it analyzes the growth-volatility nexus using firm-level data. To the best of the authors' knowledge, this is the first paper, which addresses the link between volatility, growth, and credit market imperfections using firm-level data.
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On the Economics of Ex-Post Transfers in a Federal State: A Mechanism Design Approach
Martin Altemeyer-Bartscher, T. Kuhn
WWDP, 95,
No. 95,
2008
Abstract
As a common feature in many federal states grants-in aid are payed to jurisdictions ex post, i.e. after local policy measures have chosen. We show that the central government cannot offer grants ex ante in a federal states with informational asymmetries as well as inter-temporal commitment problems. Local governments’ incentives to provide public goods are distorted if they rely on federal grants-in-aid offered ex post. Furthermore it becomes obvious that local governments are apt to substitute tax revenue for higher grants-in-aid if relevant local data are unobservable for the central government. To which extend ex post transfers mitigate local governments’ incentives crucially depends on the information structure predominant in the federation.
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Original Sin - Analysing Its Mechanics and a proposed Remedy in a Simple Macroeconomic Model
Axel Lindner
IWH Discussion Papers,
No. 11,
2006
Abstract
This paper analyses the problem of “original sin“ (the fact that the currency of an emerging market economy usually cannot be used to borrow abroad) in a simple thirdgeneration model of currency crises. The approach differs from alternative frameworks by explicitly modeling the price setting behavior of firms if prices are sticky and the future exchange rate is uncertain. Monetary policy optimally trades off effects on price competitiveness and on debt burdens of firms. It is shown that the proposal by Eichengreen and Hausmann of creating an artificial basket currency as denominator of debt is attractive as a provision against contagion.
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Does Transparency of Central Banks produce Multiple Equilibria on Currency Markets?
Axel Lindner
Scandinavian Journal of Economics,
No. 1,
2006
Abstract
A recent strand of literature shows that multiple equilibria in models of markets for pegged currencies vanish if there is slightly diverse information among traders; see Morris and Shin (2001). It is known that this approach works only if the common knowledge in the market is not too precise. This has led to the conclusion that central banks should try to avoid making their information common knowledge. We develop a model in which more transparency of the central bank implies better private information, because each trader utilises public information according to her own private information. Thus, transparency makes multiple equilibria less likely.
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Asset Tangibility and Capital Allocation within Multinational Corporations
Diemo Dietrich
IWH Discussion Papers,
No. 4,
2006
Abstract
We investigate capital allocation across a firm's divisions that differ with respect to the degree of asset tangibility. We adopt an incomplete contracting approach where the outcome of potential debt renegotiations depends on the liquidation value of assets. However, with diversity in terms of asset tangibility, liquidation proceeds depend on how funds have been allocated across divisions. As diversity can be traced back to institutional differences between countries, we provide a rationale for multidivisional decision- making in an international context. A main finding is that multinationals may be bound to go to certain countries when financiers cannot control the capital allocation.
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Investment and Internal Finance: Asymmetric Information or Managerial Discretion?
Hans Degryse, Abe de Jong
International Journal of Industrial Organization,
No. 1,
2006
Abstract
This paper examines the investment-cash flow sensitivity of publicly listed firms in The Netherlands. Investment-cash flow sensitivities can be attributed to overinvestment resulting from the abuse of managerial discretion, but also to underinvestment due to information problems. The Dutch corporate governance structure presents a number of distinctive features, in particular the limited influence of shareholders, the presence of large blockholders, and the importance of bank ties. We expect that in The Netherlands, the managerial discretion problem is more important than the asymmetric information problem. We use Tobin's Q to discriminate between firms with these problems, where LOW Q firms face the managerial discretion problem and HIGH Q firms the asymmetric information problem. As hypothesized, we find substantially larger investment-cash flow sensitivity for LOW Q firms. Moreover, specifically in the LOW Q sample, we find that firms with higher (bank) debt have lower investment-cash flow sensitivity. This finding shows that leverage, and particularly bank debt, is a key disciplinary mechanism which reduces the managerial discretion problem.
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Non-market Allocation in Transport: A Reassessment of its Justification and the Challenge of Institutional Transition
Ulrich Blum
50 Years of Transport Research: Experiences Gained and Major Challenges Ahead,
2005
Abstract
Economic theory knows two systems of coordination: through public choice or through the market principle. If the market is chosen, then it may either be regulated, or it may be fully competitive (or be in between these two extremes). This paper first inquires into the reasons for regulation, it analyses the reasons for the important role of government in the transportation sector, especially in the procurement of infrastructure. Historical reasons are seen as important reasons for bureaucratic objections to deregulation. Fundamental economic concepts are forwarded that suggest market failure and justify a regulatory environment. The reasons for regulation cited above, however, may be challenged; we forward theoretical concepts from industrial organization theory and from institutional economics which suggest that competition is even possible on the level of infrastructure. The transition from a strongly regulated to a competitive environment poses problems that have given lieu to numerous failures in privatization and deregulation. Structural inertia plays an important role, and the incentive-compatible management of infrastructure is seen as the key element of any liberal transportation policy. It requires that the setting of rules on the meta level satisfies both local and global efficiency ends. We conclude that, in market economies, competition and regulation should not be substitutes but complements. General rules, an "ethic of competition" have to be set that guarantee a level playing field to agents; it is complimented by institutions that provide arbitration in case of misconduct.
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Negotiated Third Party Access - an Industrial Organisation Perspective
Christian Growitsch, Thomas Wein
European Journal of Law and Economics,
2005
Abstract
In the course of the liberalization of European energy markets, the German government opted – diverging from all other European countries – for Negotiated Third-Party Access. In this article we analyze if, theoretically, this institutional regime can be superior to regulation. We review empirically whether certain aspects of the actual implementation, in particular publication of the network access charges for each network supplier, facilitated or inhibited competition. In the first place we reconsider previous research, showing that NTPA can – under certain conditions – be economically effective. Our empirical analysis shows that the duty of publishing access charges supported market transparency and imposed a regulatory threat, particularly to suppliers with significantly above-average charges. On the other hand observable price adjustments over time serve as an indicator of tacit collusion. Although the expensive suppliers cut their prices, the cheaper ones raised theirs.
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