German municipalities cut spending and raise taxes after receiving bailouts.
The article looks at how local governments in Germany change their spending and taxes after getting financial help from higher-level governments. They studied 421 municipalities in Hesse from 1997 to 2010. The results show that municipalities reduce spending on staff, buildings, and social programs, increase taxes, and lower deficits after receiving a bailout. This suggests that the state government can and does enforce spending cuts after providing financial assistance.