This paper exploits an exogenous reform of the local fiscal equalization scheme in the German State of North Rhine-Westphalia to identify tax mimicking by municipalities in the neighboring state of Lower Saxony. The spatial lag regressions provide no evidence for the existence of strategic...

This paper studies whether higher level governments treat politically aligned municipalities differently than unaligned ones when they provide special discretionary transfers to resolve acute fiscal problems (special needs transfers). By implementing a regression discontinuity design with a...

This paper studies with disaggregated budget data how expenditures, revenues, and borrowing evolve in municipalities that receive bailouts. It asks whether higher-level governments enforce austerity measures after bailing out indebted municipalities. The sample consists of 421 municipalities in...

We study partisan favoritism in the allocation of intergovernmental transfers. Our dataset combines local council election data with fiscal data on grant allocations in the German state of Hesse. Our identification strategy is a regression discontinuity design that relies on a perturbation...

The theoretical literature on the economics of fiscal federalism has identified several potential effects of government decentralization on economic growth. Much of the traditional literature focuses on the efficiency aspects of a decentralized provision of public services. However,...