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The debt brake: business cycle and welfare consequences of Germany's new fiscal policy rule

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Author Info
Mayer, Eric
Stähler, Nikolai

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Abstract

In 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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Publisher Info
Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2009,24.

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Date of creation: 2009
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Handle: RePEc:zbw:bubdp1:200924

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Related research
Keywords: Fiscal policy; debt brake; welfare; dsge;

Find related papers by JEL classification:
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

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This page was last updated on 2009-11-27.

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