Panel Cointegration Tests on the Fiscal Sustainability of German Laender
26 Pages Posted: 16 Sep 2014
Date Written: August 15, 2014
This paper provides new evidence on the sustainability of public finances in German states (Laender) by exploiting a newly compiled database covering the years 1950‐2011. Unlike previous studies on Germany, we analyze fiscal sustainability by applying “second generation” panel cointegration techniques. A unique identification strategy for the selection of sub‐panels improves the robustness of panel cointegration tests and reveals that Laender finances are hardly sustainable.
Keywords: fiscal sustainability, federalism, unit root, panel cointegration
JEL Classification: H620, H770, H720
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