We study the consequences of a large-scale austerity program targeting financially-constrained municipalities in Germany. For identification, we exploit the quasi-random assignment of treatment among equally-distressed municipalities using a difference-in-differences design. The policy helped targeted municipalities to consolidate budgets. Whereas the amount of fiscal consolidation was homogeneous among treated municipalities, strategies of consolidation differed between smaller and larger municipalities. The former primarily cut spending on local public services, whereas the latter predominantly relied on tax increases. We detect no adverse economic effects but sizable negative effects on population levels and house prices in municipalities reducing local amenities.
|Number of pages||39|
|Publication status||Published - Jun 2022|
|Series||CESifo Working Paper Series|
- h74 - State and Local Borrowing
- h73 - "State and Local Government; Intergovernmental Relations: Interjurisdictional Differentials and Their Effects"
- h11 - Structure, Scope, and Performance of Government
- h30 - Fiscal Policies and Behavior of Economic Agents: General
- fiscal consolidation
- local amenities
- spatial equilibrium