Panel Cointegration Tests on the Fiscal Sustainability of German Laender

This paper provides new evidence on the sustainability of public finances in German states (Laender) by exploiting a newly compiled database covering the years 1950]2011. Unlike previous studies on Germany, we analyze fiscal sustainability by applying gsecond generationh panel cointegration techniques. A unique identification strategy for the selection of sub]panels improves the robustness of panel cointegration tests and reveals that Laender finances are hardly sustainable.