Depressing Dependence? Transfers and Economic Growth in the German States, 1975-2005

31 Pages Posted: 12 Oct 2016

See all articles by Thushyanthan Baskaran

Thushyanthan Baskaran

University of Goettingen (Gottingen)

Lars P. Feld

Walter Eucken Institute; University of Freiburg - College of Economics and Behavioral Sciences; CESifo (Center for Economic Studies and Ifo Institute)

Sarah Necker

University of Freiburg

Date Written: August 17, 2016

Abstract

Most countries pay substantial intergovernmental transfers to poor regions. Since these transfers are often paid with the aim of achieving regional convergence, they should have a positive effect on economic growth. However, it is equally possible that transfers perpetuate under-development by diminishing regional incentives to implement growth-enhancing policies. In this paper, we study empirically the effect of intergovernmental transfers on economic growth using the German federation as an institutional laboratory. Our findings, which are based on a panel dataset covering the West German States over the period 1975-2005, suggest that transfers are irrelevant or possibly even harmful for economic growth. The results of our analysis of transmission channels are consistent with the notion that transfers fail to foster growth because states use them to subsidize declining industries.

Keywords: intergovernmental transfers, economic growth, fiscal federalism

JEL Classification: H700, H730, H770

Suggested Citation

Baskaran, Thushyanthan and Feld, Lars P. and Necker, Sarah, Depressing Dependence? Transfers and Economic Growth in the German States, 1975-2005 (August 17, 2016). CESifo Working Paper Series No. 6055, Available at SSRN: https://ssrn.com/abstract=2851393

Thushyanthan Baskaran

University of Goettingen (Gottingen) ( email )

Platz der Gottinger Sieben 3
Gottingen, D-37073
Germany

Lars P. Feld (Contact Author)

Walter Eucken Institute ( email )

Goethestrasse 10
Freiburg im Breisgau, Baden-W├╝rttemberg D-79100
Germany

University of Freiburg - College of Economics and Behavioral Sciences ( email )

Freiburg, D-79085
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Sarah Necker

University of Freiburg ( email )

Fahnenbergplatz
Freiburg, D-79085
Germany

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
45
Abstract Views
386
PlumX Metrics