RWI Konjunkturberichte

Local governments currently show a fiscal surplus and are expected to do so over the next years. This, however, conceals significant regional disparities. Despite the surplus structural budget deficits are high in many communities local public investment continues to be weak. The local public debt also represents a fiscal risk. For one thing, there may be a shortage of credit supply, for another, increasing interest rates have to be expected. Many local governments are neither able to balance their budgets nor to make net repayments of the debt on their own. Therefore, federal states render fiscal assistance to their local governments. A debt relief by the federal states and the mandatory reduction of the structural deficit appears to be a promising policy option.

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