Consumption risk sharing among U.S. federal states increases in booms and decreases in recessions. We find that small firms' access to credit markets plays an important role in explaining this stylized fact: business cycle fluctuations in aggregate risk sharing are more pronounced in states in...

Over 2010-2016, municipal debt in Germany crowded out private investment worth 1 percent of GDP. Forced to lend to municipalities by their statutes, local public banks compensated for declining municipal-debt yields by charging higher rates to firms in Germany's locally segmented credit markets....

The paper uses a panel of more than 1m German firms over 2010-2016, to provide the first firm-bank level evidence of local crowding out for a developed economy characterized by low interest rates and fiscal austerity. Our mechanism relies on two structural features of Germany's banking...