Germany's New Debt Brake: A Blueprint for Europe?
AbstractMany policy reforms are introduced with a significant lag between the time of legislative passage and their actual implementation. This is also the case for a new constitutional rule in Germany, referred to as a debt brake (Schuldenbremse), which requires the federal and state governments to run (almost, cyclically adjusted) balanced budgets from 2016 and 2020 onward, respectively. In this context I analyze within a simple political-economy model, where politicians are less patient than citizens, the costs and benefits of a credibly announced but lagged deficit or debt ceiling. I show that a balanced-budget rule is at best as effective as not having such a rule in terms of implementing the first best. In an important benchmark case, the first best cannot be reached at all. By contrast, a constitutional limit on the future debt level is more effective, even though the first best cannot be always reached when politicians are too impatient.
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Bibliographic InfoArticle provided by Mohr Siebeck, Tübingen in its journal FinanzArchiv.
Volume (Year): 68 (2012)
Issue (Month): 4 (December)
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Web page: http://www.mohr.de/fa
Postal: Mohr Siebeck GmbH & Co. KG, P.O.Box 2040, 72010 Tübingen, Germany
Find related papers by JEL classification:
- D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
- H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
- H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
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