Abstract (English)
Austrian municipalities face manifold challenges regarding the sustainability of their budgetary policies, especially concerning public debt. On the one hand, municipalities are closely monitored and supervised by upper-level governments. Local borrowing is confined to pre-defined cases with respect to extra-ordinary expenditure. On the other hand, municipal discretion over expenditure and revenue is limited. In the current paper, we test whether municipalities budgetary policies were sustainable in the sense of Bohns (1998) sustainability test. We find that the debt limits were quite effective resulting in stationary debt levels, and in significant and sufficient reactions of the municipal primary surplus to increases in public debt. However, in order to achieve such sustainable policies, municipalities have widely cut investments in local infrastructure. From a long-term perspective, such development is problematic with respect to the quality of available vital infrastructure