Rainer Kambeck explains that municipality budgets in Germany finished the fiscal year 2013 in total with a surplus of 1.7 bn Euro. In addition, the current year their overall budget will conclude with a surplus. However, there are huge differences in the situation of local budgets. Numerous local authorities have serious problems to balance their budget due to structurally overburden expenditures and due to outstanding large dept levels, especially in terms of “Cash Credits”. The Länder have started to set up different bail out mechanisms because they are responsible for the financial reliability of their local authorities. Credit is the backbone of capitalism because credit allows allocating resources efficiently to economic activities argue Charles B. Blankart and David Christoh Ehmke. For the case of distress, a bankruptcy regime is established which allows reviving viable but financially distressed businesses and to liquidate structurally distressed businesses in an orderly asset distribution procedure. Bankruptcy is ex ante of utmost importance because it incentivizes debtors and creditors to adjust credit costs and lending practice to expect ex post outcomes. Bankruptcy has, however, been abolished under socialism leading to systems of soft budget constraints which are lenient towards inefficient managements. Since the fall of socialism, mixed capitalist- socialist economies prevail in most countries of the world with bankruptcy procedures for private enterprises, but not for public entities, more importantly, even restructuring procedures are not available for these public establishments. Instead, debt brakes should do the job. However, debt brakes invite governments to externalize public debts and to shift them to lower entities - from the state to the local level - leading to “institutional incongruence”, i. e. the drifting apart of the circles of beneficiaries, decision makers, and taxpayers. Three models of institutional congruence are analyzed by, ranging between vertical fiscal control and fiscal autonomy. The logical consequence of fiscal autonomy is then the establishment of restructuring procedures, which are presented along the procedures of Chapter 9 of the US Bankruptcy Act and private ordering procedures such like those of the Paris and the London Club. Generally spoken, there are good reasons for such bail out programs. However, they should be organized in such a way, that the tax wedge on trade (Gewerbesteuer) and property (Grundsteuer) does not increase continuously. But also there is already data indicating such as development. A rising tax burden, however, weakens the position of our companies in global competition. Therefore, the programs have to be evaluated on a scientific basis. In some cases, they have to be adapted. Budget authorities should focus more on cutting expenses because it usually is the best way to ease the budgetary situation sustainably. At the same time, it helps to avoid rising multipliers in impersonal taxes.
