International Banking, Fiscal Institutions and Public Debt: Essays on Financial Market and Fiscal Policy

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Dokumentart: PhDThesis
Date: 2016
Language: English
Faculty: 6 Wirtschafts- und Sozialwissenschaftliche Fakultät
6 Wirtschafts- und Sozialwissenschaftliche Fakultät
Department: Wirtschaftswissenschaften
Advisor: Buch, Claudia M. (Prof. Dr.)
Day of Oral Examination: 2016-02-08
DDC Classifikation: 320 - Political science
330 - Economics
350 - Public administration and military science
Keywords: Verschuldungsgrenze , Fiskalpolitik , Umschuldung , Eurozone , Finanzkrise , Schuldenkrise , Länderfinanzausgleich , Steuerhoheit , Gravitationsmodell , Staatsbankrott , Insolvenz , Öffentliche Schulden , Haushaltsdefizit , Glaubwürdigkeit , Umfrage
Other Keywords: Umschuldungsmechanismus
finanzielle Friktionen
serielle Umschuldungen
budget deficit
debt brake
debt crisis
euro area
financial frictions
fiscal equalization
fiscal rules
gravity model
international banking
revenue autonomy
serial restructurings
sovereign debt haircut
sovereign debt restructuring
sovereign insolvency procedure
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The recent sequence of crises (global financial crisis, Great Recession, European sovereign debt crisis) sparked off historic reforms in the spheres of banking regulation and financial market policy as well as in the sphere of fiscal policy. The dissertation addresses several important aspects of these crises, their consequences and relevant policy reactions. In a first essay, the question is raised whether and how the global financial crisis and the policy reactions (bank rescue measures and regulatory tightening) have changed (German) banks’ inter-national activities. Using a comprehensive data set on the foreign activities of German banks and their foreign affiliates, it shows that these banks have reduced their international assets during the crisis, both along the extensive (number of affiliates abroad) and the intensive margin (volume of foreign activity). This partial withdrawal from foreign markets is found to be the result of changing market conditions due to re-regulation as well as direct policy interventions during the crisis. The second essay asks whether the German constitutional ‘debt brake’ is credible at the Länder level. It comprises a dynamic theoretical model characterized by lagged implementation. The hy-potheses from this model are tested with empirical probit estimations using a self-conducted sur-vey among members of all 16 German state parliaments. The hypotheses are confirmed: Compli-ance is more likely, (i) the lower is the initial deficit (ii) the lower are bailout expectations of Länder politicians (vis-à-vis the federal government), (iii) the tighter is the future fiscal rule, and (iv) the higher is the current deficit reduction. Additionally, the paper finds an asymmetry in compliance expectations between insiders (in-state politicians) and outsiders (out-of-state politicians), which can be attributed to overconfidence rather than noisy information on the basis of the empirical findings. The third essay analyzes preferences of Länder politicians with respect to subnational revenue autonomy and the appropriateness of the current German fiscal equalization scheme. Again, using a self-conducted survey of Länder politicians, the results of ordered probit estimations hint at the joint importance of ideology and jurisdictional vested interests. Länder legacies (like high debt levels) seem to be especially crucial for the understanding of reform resistance. The fourth essay asks which restructuring features potentially affect the probability of serial sovereign debt restructurings. Using Cox (1972) proportional hazard models and a comprehensive dataset on sovereign debt renegotiations provided by Cruces and Trebesch (2013), it finds that greater debt remissions decrease the probability of serial restructurings. Furthermore, reductions in net present value due to outright face value haircuts reduce the probability of serial restructurings more strongly than equally sized reductions in net present value due to maturity extensions and/or interest rate reductions. The final essay presents a proposal of a statutory restructuring framework for sovereign countries in the euro area suited to (re-)establish market discipline. The chapter specifically analyzes political and economic hurdles to the implementation of such a restructuring framework. The Viable Insolvency Procedure for Sovereigns combines and refines existing proposals. However, concerning the timing of the implementation and the becoming effective of the specific procedure that is supposed to protect sovereign countries and their creditors in the long run, the proposal avoids any sudden measures that could destabilize the still delicate situation in the euro area. Instead, it carefully designs an irreversible and credible transition path towards the new regime characterized by lagged implementation (Buchanan, 1994).

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