Evaluating the effects of the German debt brake: A synthetic control approach

Maximilian Langer, Joshua Hassib, Lars Feld and Daniel Nientiedt

No 26/2, Freiburg Discussion Papers on Constitutional Economics from Walter Eucken Institut e.V.

Abstract: This paper assesses the effectiveness and fiscal implications of the German debt brake, a constitutional fiscal rule introduced in 2009 to ensure debt sustainability. To estimate its causal effects, we employ a synthetic control design that combines canonical, augmented, and multiple-outcome synthetic control methods alongside comparative interrupted time-series analysis. We compare the observed trajectories of six fiscal and macro-financial outcome variables in Germany with their counterfactual trajectories of a synthetic Germany without the rule. The results indicate that the debt brake was a key driver of the consolidation of German public finances during the 2010s. It substantially reduced debt accumulation and improved the primary balance. By strengthening fiscal discipline, the rule likely also contributed to lower financing costs, although this effect cannot be attributed to the debt brake exclusively. We find no robust evidence that the rule reduced public investment at the federal level. At the general government level, investment effects are less conclusive and may reflect vertical fiscal interactions across different levels of government. The results are supported by a range of inference procedures and robustness checks.

Keywords: Fiscal rules; Fiscal federalism; German debt brake; Policy evaluation; Synthetic control method (search for similar items in EconPapers)
JEL-codes: C13 C53 D78 H60 H63 H77 (search for similar items in EconPapers)
Date: 2026
New Economics Papers: this item is included in nep-eec
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Related works:
Working Paper: Evaluating the Effects of the German Debt Brake: A Synthetic Control Approach (2025)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:aluord:343049

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