Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/282187 
Year of Publication: 
2023
Series/Report no.: 
Working Paper No. 380
Version Description: 
Revised version, December 2023
Publisher: 
University of Zurich, Department of Economics, Zurich
Abstract: 
Over 2010-2016, municipal debt in Germany crowded out private investment worth 1 percent of GDP. Forced to lend to municipalities by their statutes, local public banks compensated for declining municipal-debt yields by charging higher rates to firms in Germany's locally segmented credit markets. The ensuing crowding out was made worse by increased municipal borrowing when expensive fiscal commitments were shifted from federal and state to the municipal levels following the introduction of the debt brake. Our results identify new channels through which low interest rates adversely affect real outcomes and locally segmented credit markets can amplify contractionary effects from fiscal austerity.
Subjects: 
local public finance
firm-level investment
crowding out
fiscal austerity
fiscal rules
global and intra-European imbalances
JEL: 
E22
E40
E62
G21
G28 F21
F32
H32
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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