01934cas a2200253 a 4500 AALejournalIMF005852 230101c9999 xx r poo 0 0eng d 5.00 USD 9781451872712 1018-5941 BD-DhAAL BD-DhAAL Stehn, Sven Jari. Fiscal Incentive Effects of the German Equalization System / Sven Jari Stehn, Annalisa Fedelino. Washington, D.C. : International Monetary Fund, 2009. 1 online resource (29 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students Does reliance on transfers weaken fiscal discipline and encourage pro-cyclical fiscal policies in recipient subnational governments? Using fiscal reaction functions for a panel of the German Lander, this paper finds a positive answer to both questions. Net-recipient states (Lander, benefiting from the transfer system) have not reduced primary expenditure significantly in response to rising deficits, but have instead relied on vertical transfers from the federal government to ensure debt sustainability. Moreover, they have pursued pro-cyclical policies, particularly by raising expenditures in good times. Net-contributing Lander (paying into the transfer system), in contrast, have ensured fiscal sustainability through spending adjustments; they have also been less pro-cyclical. Panel vector auto-regressions confirm these findings. Mode of access: Internet Fedelino, Annalisa. IMF Working Papers; Working Paper ; No. 2009/124 Full text available on IMF http://elibrary.imf.org/view/journals/001/2009/124/001.2009.issue-124-en.xml IMF e-Library