Race to the debt trap? - Spatial econometric evidence on debt in German municipalities
- 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 rightsThrough 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.…
| Author details: | Rainald BorckORCiDGND, Frank M. Fossen, Ronny Freier, Thorsten MartinORCiDGND |
|---|---|
| DOI: | https://doi.org/10.1016/j.regsciurbeco.2015.04.003 |
| ISSN: | 0166-0462 |
| ISSN: | 1879-2308 |
| Title of parent work (English): | Regional science and urban economics |
| Publisher: | Elsevier |
| Place of publishing: | Amsterdam |
| Publication type: | Article |
| Language: | English |
| Year of first publication: | 2015 |
| Publication year: | 2015 |
| Release date: | 2017/03/27 |
| Tag: | Municipality data; Public debt; Spatial interactions; Spatial panel estimation; Tax and spending competition |
| Volume: | 53 |
| Number of pages: | 18 |
| First page: | 20 |
| Last Page: | 37 |
| Funding institution: | Fritz Thyssen Foundation [10.12.2.092] |
| Organizational units: | Wirtschafts- und Sozialwissenschaftliche Fakultät / Wirtschaftswissenschaften |
| Peer review: | Referiert |
