In the sovereign debt crisis European governments rushed to regain market confidence by establishing new fiscal institutions. Due to the interconnectiveness of the multi-level polity policy-makers on all levels had to take measures to respond to the financial crisis. On the EU-level, according to the fiscal compact, member states committed to introduce stricter national debt rules. To strengthen their credibility German subnational governments complementarily established regulations on public finance. We find substantial variation in the fiscal rule strength on both the national and subnational level with regard to the legal base, ambitiousness, enforcement mechanisms and coverage of the regulation. Our study examines how the cross-country differences can be explained by economic factors, covering the fiscal sustainability and exposure to the financial crisis, as well as political factors such as party effects and position in equalization schemes. We then test if these factors also explain the differences between German Länder.
