Shift of Public Expenditures Through Debt Brakes: the Swiss Experience
Abstract: Formal fiscal rules are currently introduced in several countries. In fact, a recent survey reveals that their number has risen from five in 1990 to almost 80 in 2012. While most studies focus on intra-jurisdictional effects of fiscal rules, vertical impacts on the finances of other government tiers have hardly been discussed so far. Hence, this paper studies the influence of Swiss cantonal debt brakes on municipal finances. In order to investigate that matter, a unique database that encompasses the 141 largest Swiss municipalities and cities between the years 1982 and 2007 is examined in a panel analysis. The estimation results suggest that municipal expenditures and revenues significantly decreased in the aftermath of a cantonal debt brake implementation. This holds in particular, in the case of rigid debt brake and if local spending on security, education and health is considered.
