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Tax Reform and Debt Sustainability in Germany


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  • Dennis P. J. Botman
  • Stephan Danninger


In 2005, the German government announced a far-reaching fiscal adjustment program. This paper uses the IMF’s Global Fiscal Model to study its impact and explores options for addressing long-term pressures from population aging. The growth effects of the planned VAT increase are likely modest, largely owing to the stimulating effect of other tax reductions. The reform will improve the long-term debt path but achieving fiscal sustainability requires further adjustment over the medium term. An additional package of expenditure restraint, entitlement reform, and tax-base broadening compares favorably to other adjustment options. Spillover effects to trading partners of these policies are modest.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 07/46.

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Length: 30
Date of creation: 01 Feb 2007
Date of revision:
Handle: RePEc:imf:imfwpa:07/46

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Keywords: Aging; Debt sustainability; Tax reforms; Value added tax; Economic models; taxation; tax reform; fiscal adjustment; tax base; fiscal policy; payroll taxes; vat rate; tax measures; government spending; corporate income taxation; fiscal model; fiscal sustainability; tax policy; consumption tax; tax increases; tax system; fiscal consolidation; tax rates; corporate income tax; expenditure cuts; fiscal pressures; direct taxation; indirect taxes; tax reform proposals; indirect tax; income taxes; tax reductions; public debt; tax exemptions; aggregate demand; personal income tax; efficient tax system; indirect taxation; fiscal policies; vat revenue; consumption taxes; budget constraint; fiscal deficits; fiscal adjustment package; fiscal deficit; direct taxes; income tax rates; effects of taxation; fiscal reaction function; personal income taxes; sales tax; expenditure ratios; tax distortions; expenditure restraint; cuts in government spending; fiscal reform; fiscal affairs department; tax bases; fiscal reaction; fiscal difficulties; payroll tax; fiscal implications; fiscal impulse; expenditure policy; direct tax; tax burden; fiscal affairs; fiscal structure; fiscal balance; fiscal issues; fiscal improvement; fiscal scenario; marginal tax rates; deficit reduction; capital stock; fiscal variables; primary expenditure; fiscal developments; current account deficit;

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  1. Douglas Laxton & Paolo Pesenti, 2003. "Monetary Rules for Small, Open, Emerging Economies," NBER Working Papers 9568, National Bureau of Economic Research, Inc.
  2. Michiel Evers & Ruud A. De Mooij & Daniel J. Van Vuuren, 2005. "What Explains the Variation in Estimates of Labour Supply Elasticities?," CESifo Working Paper Series 1633, CESifo Group Munich.
  3. Nicoletta Batini & Alessandro Rebucci & Papa M'B. P. N'Diaye, 2005. "The Domestic and Global Impact of Japan's Policies for Growth," IMF Working Papers, International Monetary Fund 05/209, International Monetary Fund.
  4. Martin Werding & Anita Kaltschütz, 2005. "Modellrechnungen zur langfristigen Tragfähigkeit der öffentlichen Finanzen," ifo Beiträge zur Wirtschaftsforschung, Ifo Institute for Economic Research at the University of Munich, Ifo Institute for Economic Research at the University of Munich, number 17, 8.
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Cited by:
  1. Murtaza H. Syed & Michael Skaarup & Tarhan Feyzioglu, 2008. "Addressing Korea's Long-Term Fiscal Challenges," IMF Working Papers, International Monetary Fund 08/27, International Monetary Fund.
  2. European Commission, 2011. "Tax Reforms in EU Member States 2011: tax policy challenges for economic growth and fiscal sustainability," Taxation Papers, Directorate General Taxation and Customs Union, European Commission 28, Directorate General Taxation and Customs Union, European Commission.
  3. Manmohan S. Kumar & Dennis P. J. Botman, 2007. "Global Aging Pressures," IMF Working Papers, International Monetary Fund 07/196, International Monetary Fund.


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