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Co-Partisan Buddies or Partisan Bullies? Why State Supervision of Local Government Borrowing Fails

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  • Felix Rösel

Abstract

In many federal countries, local governments run large deficits, even when supervision by state authorities is tight. I investigate whether party alignment of mayors and supervisors influences local government borrowing. The dataset includes 427 local German governments over the period 1999–2012. I exploit variation of a far-reaching institutional reform that entirely re-distributed political powers on both debt issuance and supervision. The results show that short-term deficits of local governments are not enabled by a vertical “buddy” relationship between a mayor and a supervisor affiliated with the same party (co-partisanship) but rather by an ideological “bully behavior” of partisan supervisors and supervisees: left-wing local governments issue more debt, while left-wing supervisory authorities tolerate more debt. These findings imply that political independence for state supervisory authorities is highly recommended.

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  • Felix Rösel, 2014. "Co-Partisan Buddies or Partisan Bullies? Why State Supervision of Local Government Borrowing Fails," ifo Working Paper Series 189, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    • Handle: RePEc:ces:ifowps:_189
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    Cited by:

    1. Christofzik, Désirée I. & Kessing, Sebastian G., 2018. "Does fiscal oversight matter?," Journal of Urban Economics, Elsevier, vol. 105(C), pages 70-87.
    2. Potrafke Niklas & Riem Marina & Schinke Christoph, 2016. "Debt Brakes in the German States: Governments’ Rhetoric and Actions," German Economic Review, De Gruyter, vol. 17(2), pages 253-275, May.

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    More about this item

    JEL classification:

    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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