The debt brake: business cycle and welfare consequences of Germany's new fiscal policy rule
AbstractIn a New Keynesian DSGE model with non-Ricardian consumers, we show that automatic stabilization according to a countercyclical spending rule following the idea of the debt brake is well suited both to steer the economy and in terms of welfare. In particular, the adjustment account set up to record public deficits and surpluses serves well to keep the level of government debt stable. However, it is essential to design its feedback to government spending correctly, where discretionary lapses should be corrected faster than lapses due to estimation errors. --
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Bibliographic InfoPaper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2009,24.
Date of creation: 2009
Date of revision:
Fiscal policy; debt brake; welfare; dsge;
Other versions of this item:
- Eric Mayer & Nikolai Stähler, 2013. "The debt brake: business cycle and welfare consequences of Germany’s new fiscal policy rule," Empirica, Springer, vol. 40(1), pages 39-74, February.
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-09-19 (All new papers)
- NEP-CBA-2009-09-19 (Central Banking)
- NEP-DGE-2009-09-19 (Dynamic General Equilibrium)
- NEP-MAC-2009-09-19 (Macroeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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