Soft Budget Constraints in German Fiscal Federalism: Lessons for Fiscal Governance

Fiscal federalism is characterized by an inherent inefficiency which has increasingly surfaced in the last two decades: the soft budget constraint. As evidence shows, sub-national 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 bailout expectations be reduced? And what are the lessons to be learned for fiscal governance? This dissertation contributes to the research on fiscal federalism in Germany, explaining sub-national bailout expectations and proposing agency cost-efficient solutions for fiscal governance, both from the perspective of public choice and new institutional economics. Dissertation.