Soft Budget Constraints in German Fiscal Federalism

Fiscal Federalism is characterized by an inherent inefficiency which has increasingly surfaced in the last two decades: the soft budget constraint. As evidence shows, subnational governments can expect to be bailed out by the central government in cases of fiscal distress. How can this “federal disease” be overcome? How can we reduce bailout expectations? And what are the lessons to be learned for fiscal governance? This book contributes to the research on fiscal federalism by attempting to explain subnational bailout expectations and by proposing agency cost-efficient solutions for fiscal governance, both from the perspective of Public Choice and the New Institutional Economics.