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Tax Reforms and "Modell Deutschland": Lessons from Four Years of Red-Green Tax-Policy

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  • Truger, Achim
  • Jacoby, Wade
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    Abstract

    When the red-green (SPD-Bündnis90/DieGrünen) coalition took over the federal government from the Christian-Democrat/Free-Democrat (CDU/CSU/FDP) coalition in 1998, tax reforms had a very high political priority. And, in fact, the government pushed through an astonishing number of far-reaching tax reforms/tax changes within a period of little more than two years. This paper follows two aims. First, it gives a short description of the measures taken and evaluates them with respect to tax theory and the German tax reform debate of the 1990s. Second, it explicitly addresses the question whether the tax changes were influenced by the wish to reform the Modell Deutschland, i.e. whether something substantial was done to change Germany´s status as a perceived high tax country and if so, whether the attempt was successful. It will be shown that even though the problem of high taxes might have been many observers´ and, indeed, also the government´s dominant concern, there was much more to the German debate. The chapter will also ask whether generously cutting taxes was the right thing to do. It demonstrates that under Germany´s peculiar economic and institutional circumstances at the end of the 1990s, the attempt to cut taxes led to serious problems for fiscal policy, growth, and employment.

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    File URL: http://www.escholarship.org/uc/item/31866224.pdf;origin=repeccitec
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    Bibliographic Info

    Paper provided by Institute of European Studies, UC Berkeley in its series Institute of European Studies, Working Paper Series with number qt31866224.

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    Date of creation: 09 Dec 2002
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    Handle: RePEc:cdl:bineur:qt31866224

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    Keywords: Center for German and European Studies; economy; finance; institutions; PEIF;

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    1. Hefeker, Carsten, 2001. "The agony of central power: Fiscal federalism in the German Reich," European Review of Economic History, Cambridge University Press, vol. 5(01), pages 119-142, April.
    2. Truger, Achim & Hein, Eckhard, 2002. "Schlusslicht Deutschland': makroökonomische Ursachen," Wirtschaftsdienst – Zeitschrift für Wirtschaftspolitik (1998 - 2007), ZBW – German National Library of Economics / Leibniz Information Centre for Economics, vol. 82(7), pages 402-410.
    3. Gerhard Wagenhals, 2000. "Incentive and Redistribution Effects of the German Tax Reform 2000," Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim 188/2000, Department of Economics, University of Hohenheim, Germany.
    4. Stefan Bach & Dieter Vesper, 2000. "Finanzpolitik und Wiedervereinigung: Bilanz nach 10 Jahren," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 69(2), pages 194-224.
    5. Stefan Bach & Dieter Vesper, 2002. "Finanz- und Investitionskrise der Gemeinden erzwingt grundlegende Reform der Kommunalfinanzen," DIW Wochenbericht, DIW Berlin, German Institute for Economic Research, vol. 69(31), pages 505-517.
    6. Bernhard Seidel & Dieter Teichmann & Sabine Thiede, 1999. "Ehegattensplitting nicht mehr zeitgemäß," DIW Wochenbericht, DIW Berlin, German Institute for Economic Research, vol. 66(40), pages 713-724.
    7. Dieter Vesper, 2001. "Zum infrastrukturellen Nachholbedarf in Ostdeutschland," DIW Wochenbericht, DIW Berlin, German Institute for Economic Research, vol. 68(20), pages 293-298.
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