(Un-)Sustainability of Public Finances in German Laender: A Panel Time Series Approach

This paper provides evidence that most German states (Laender) have unsustainable public finances by exploiting a newly compiled database covering the years 1950-2011. Although the Laender are closely intertwined we are the first to apply “second generation” panel techniques that control for correlation among the Laender. A unique identification strategy for the selection of relevant sub-panels improves the robustness of the tests.