Is the debt brake behind Germany's successful fiscal consolidation?

Katja Rietzler () and Achim Truger

No 105/2018, IPE Working Papers from Berlin School of Economics and Law, Institute for International Political Economy (IPE)

Abstract: Both the German federal as well as the general government recorded a surplus for the fourth time in a row in 2017. The fast consolidation after the Great Recession coincided with the transition period for the full introduction of the federal debt brake, which is sometimes interpreted as causality. At the same time Germany's economic performance is better than that of many other countries. For this reason it is nearly impossible to overrate the symbolic power of the debt brake as a seeming success story. In this paper we scrutinise the seeming success story of the debt brake. We carry out a comparative analysis of the "structural" consolidation of public finances in Germany for the period from 1991 until 2017 showing that the German debt brake is not the cause of the successful budget consolidation in Germany since 2010. The improvement of the general government finances since 2010 was smaller than in previous consolidation phases and was strongly supported by a favourable macroeconomic environment, and one-off effects. Finally, neither the general government sector nor the federal government would be in such a good fiscal shape, had the economy evolved less favourably since 2010. Without the blessing of a strong upswing Germany would hardly have become the fiscal role model for Europe and the German debt brake would not have become the blueprint for the European Fiscal Compact.

Keywords: Germany; debt brake; consolidation; Euro crisis; sovereign debt (search for similar items in EconPapers)
JEL-codes: E39 E62 H50 H62 H74 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-eec and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ipewps:1052018

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