Data and Code for: The Dynamic Response of Municipal Budgets to Revenue Shocks

Municipal budgets do not adjust instantly. Instead, spending and investments adapt within five years to revenue gains, while the adjustment to losses is more rapid.

Yet, the long-run response is symmetric. The tax response is particularly slow, stretching over more than a decade. Well-known empirical “anomalies” such as the so-called flypaper effect may thus reflect a short-run phenomenon, while long-run fiscal behavior appears more consistent with standard theories of fiscal federalism. | municipalities in Bavaria, Baden-Wuerttemberg, Hessia, North-Rhine Westphalia, Lower Saxony.