Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/145090
Authors: 
Baskaran, Thushyanthan
Feld, Lars P.
Necker, Sarah
Year of Publication: 
2016
Series/Report no.: 
CESifo Working Paper 6055
Abstract: 
Most countries pay substantial intergovernmental transfers to poor regions. Since these transfers are often paid with the aim of achieving regional convergence, they should have a positive effect on economic growth. However, it is equally possible that transfers perpetuate under-development by diminishing regional incentives to implement growth-enhancing policies. In this paper, we study empirically the effect of intergovernmental transfers on economic growth using the German federation as an institutional laboratory. Our findings, which are based on a panel dataset covering the West German States over the period 1975-2005, suggest that transfers are irrelevant or possibly even harmful for economic growth. The results of our analysis of transmission channels are consistent with the notion that transfers fail to foster growth because states use them to subsidize declining industries.
Subjects: 
intergovernmental transfers
economic growth
fiscal federalism
JEL: 
H70
H73
H77
Document Type: 
Working Paper

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