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Grant Dependence, Regulation and the Effects of Formula-based Grant Systems on German Local Governments: A Data Report for Saxony-Anhalt

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  • Haug, Peter

Abstract

Recent empirical studies have found - seemingly - efficiency-enhancing effects of vertical grants on local public service provision. The main purpose of this paper is to prepare an elaborate theoretical and empirical analysis of these contradictory results. Therefore, it investigates if certain fiscal and institutional conditions (fiscal stress, fiscal rank-preserving vertical grant systems, input- and output regulation), that might help to explain these empirical findings, are characteristic of at least some parts of the local government sector or certain regions. The German state of Saxony-Anhalt is chosen for case study purposes. The main results are: First, the local governments suffer from severe fiscal problems such as high grant dependency, low tax revenues and the prevalent inability to finance investments by own resources. Second, the output- and inputregulation density of certain mandatory municipal services (schools, childcare facilities, fire protection) is high. Finally, the most important vertical grant category for local governments, the formula-based grants ('Schlüsselzuweisungen'), can be described as mainly exogenous, unconditional block grants that in most cases preserve the relative fiscal position of the grant recipients.

Suggested Citation

  • Haug, Peter, 2013. "Grant Dependence, Regulation and the Effects of Formula-based Grant Systems on German Local Governments: A Data Report for Saxony-Anhalt," IWH Discussion Papers 2/2013, Halle Institute for Economic Research (IWH).
  • Handle: RePEc:zbw:iwhdps:iwh-2-13
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    1. Bischoff, Ivo & Bönisch, Peter & Haug, Peter & Illy, Annette, 2014. "Vertical Grants and Local Public Efficiency," IWH Discussion Papers 1/2013, Halle Institute for Economic Research (IWH), revised 2014.
    2. Ivo Bischoff & Peter Bönisch & Peter Haug & Annette Illy, 2019. "Vertical Grants and Local Public Efficiency: The Inference-disturbing Effect of Fiscal Equalization," Public Finance Review, , vol. 47(3), pages 558-584, May.

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    More about this item

    Keywords

    vertical grants; local public finance; fiscal equalization; regulation of the public sector; Saxony-Anhalt; Vertikale Finanzzuweisungen; Kommunalfinanzen; Kommunaler Finanzausgleich; Regulierung des öffentlichen Sektors; Sachsen-Anhalt;
    All these keywords.

    JEL classification:

    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures

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