The fiscal regulation of local governments has a long tradition in Germany and is, theoretically, rather strict. The municipal budget law of German states clearly prescribes balanced budgets, monitoring and enforcement instruments as well as a dense structure of supervision. Nonetheless, the...

Despite the existence of strict budgetary frameworks and fiscal equalisation systems, municipal budget crisis has been a phenomenon in Germany for decades. As an institutional response, most German states implemented bailouts to restore local public finances. This chapter gives a brief...