Fiscal Transfers and Fiscal Sustainability

43 Pages Posted: 16 Apr 2014

See all articles by Niklas Potrafke

Niklas Potrafke

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Markus Reischmann

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Date Written: March 16, 2014

Abstract

We examine whether US and German state governments pursue sustainable fiscal policies taking into account fiscal transfers. Using panel data techniques we investigate whether the debt-to-GDP ratio had a positive influence on the primary surplus (Bohn-model). We show that including/excluding fiscal transfers changes the results. If fiscal transfers are not included in the primary surplus, the test results do not indicate that the US and German state governments pursued sustainable fiscal policies. Our results also suggest that fiscal transfers were positively related with debt. These findings indicate that intergovernmental transfers have implicitly subsidized debts.

Keywords: fiscal sustainability, public debt, institutions, fiscal transfers, panel data

JEL Classification: H720, H740, H770, C230

Suggested Citation

Potrafke, Niklas and Reischmann, Markus, Fiscal Transfers and Fiscal Sustainability (March 16, 2014). CESifo Working Paper Series No. 4716, Available at SSRN: https://ssrn.com/abstract=2425560

Niklas Potrafke (Contact Author)

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute ( email )

Poschinger Str. 5
Munich, 01069
Germany

Markus Reischmann

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute ( email )

Poschinger Str. 5
Munich, 01069
Germany

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