The debt brake of the German states: a faulty design?

Gebhard Kirchgässner

Constitutional Political Economy, 2017, vol. 28, issue 3, No 3, 257-269

Abstract: Abstract The debt brake for German states, which demands that they are forbidden from taking up new net debt from 2020 onwards, has two major shortcomings. First, states do not have tax autonomy. In fiscal crises, they can only make adjustments to expenditure but not on the revenue side. Given the fact that most expenditure is—at least in the short term—predetermined by law, in such a crisis a balanced budget without new debt is hardly feasible. Second, the measure does not take into account that large investments, in particular in small regional units, can scarcely be financed by current expenditure. Thus, there is a high probability that at least some states will take up new net debt even after 2020 and, therefore, violate the rules of the debt brake.

Keywords: Debt brake; Balanced budget requirement; Tax autonomy; Investment expenditure (search for similar items in EconPapers)
JEL-codes: H61 H63 H74 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s10602-017-9240-3

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