TY  - JOUR
A1  - Borck, Rainald
A1  - Fossen, Frank M.
A1  - Freier, Ronny
A1  - Martin, Thorsten
T1  - Race to the debt trap? - Spatial econometric evidence on debt in German municipalities
JF  - Regional science and urban economics
N2  - Through an intertemporal budget constraint, jurisdictions may gain advantages in tax and spending competition by 'competing' on debt. While the existing spatial econometric literature focuses on tax and spending competition, very little is known about spatial interaction via public debt. If jurisdictions compete for mobile capital to finance public spending, they may compete in debt levels as well as taxes. We use a theoretical model to derive the reaction of jurisdictions' debt levels to their neighbors' debts. We then estimate the spatial interdependence of public debt among German municipalities using a panel on municipalities in the two largest German states from 1999 to 2006. We find significant and robust interaction effects between debt levels of neighboring municipalities, which we compare to spatial tax and spending interactions. The results indicate that a municipality increases its per capita debt by 16-33 Euro as a reaction to an increase of 100 Euro in neighboring municipalities. (C) 2015 Elsevier B.V. All rights reserved.
KW  - Public debt
KW  - Tax and spending competition
KW  - Municipality data
KW  - Spatial interactions
KW  - Spatial panel estimation
Y1  - 2015
U6  - https://doi.org/10.1016/j.regsciurbeco.2015.04.003
SN  - 0166-0462
SN  - 1879-2308
VL  - 53
SP  - 20
EP  - 37
PB  - Elsevier
CY  - Amsterdam
ER  -