We examine whether US and German state governments pursue sustainable fiscal policies taking into account fiscal transfers. Using panel data techniques we investigate whether the debt-to-GDP ratio had a positive influence on the primary surplus (Bohn-model). We show that including/excluding...

Fiscal sustainability tests have largely ignored the institutional setting of fiscal policy making. Fiscal equalization schemes in federal states are one such institution. We examine whether German state governments pursue sustainable fiscal policies taking into account fiscal equalization...