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Debt Brakes in the German States: Governments’ Rhetoric and Actions

Author

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  • Potrafke Niklas

    (Ifo Institute,Munich, Germany)

  • Riem Marina

    (Ifo Institute,Munich, Germany)

  • Schinke Christoph

    (Ifo Institute,Munich, Germany)

Abstract

In 2009, a new law on German debt brakes was passed: state governments are not allowed to run structural deficits after 2020. Consolidation strategies initiated between 2009 and 2020 influence if a state can comply with the debt brake in 2020. We describe to what extent government ideology predicts if state governments consolidate budgets and which fiscal adjustment path they choose. Attitudes toward budget consolidation, as expressed by politicians’ rhetoric in the public debate, differed among parties. Anecdotal evidence and descriptive statistics indicate that leftwing governments ran on average higher structural deficits than rightwing governments between 2010 and 2014. Primary deficits, however, hardly differed under leftwing and rightwing governments. Revenues of federal taxes were much higher than expected and facilitated budget consolidation. Leftwing governments did not need to run deficits to design generous budgets. It is conceivable that parties confirmed their identity by using expressive rhetoric, but responded to shifts in public opinion after the financial crisis and pursued more sustainable fiscal policies when in office.

Suggested Citation

  • Potrafke Niklas & Riem Marina & Schinke Christoph, 2016. "Debt Brakes in the German States: Governments’ Rhetoric and Actions," German Economic Review, De Gruyter, vol. 17(2), pages 253-275, May.
    • Handle: RePEc:bpj:germec:v:17:y:2016:i:2:p:253-275
    DOI: 10.1111/geer.12089
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    Cited by:

    1. Johannes Blum & Klaus Gründler & Raphael de Britto Schiller & Niklas Potrafke, 2019. "Die Schuldenbremse in der Diskussion – Teilnehmer des Ökonomenpanels mehrheitlich für Beibehaltung," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 72(22), pages 27-33, November.
    2. Felix Rösel, 2017. "The Political Economy of Fiscal Supervision and Budget Deficits: Evidence from Germany," Fiscal Studies, Institute for Fiscal Studies, vol. 38, pages 641-666, December.
    3. Aaron Günther & Niklas Potrafke & Emil Scholten, 2025. "Fiscal Policies and Parliamentary Activities of Minority Governments in the German States," ifo Working Paper Series 421, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    4. Marina Riem, 2016. "Does political uncertainty influence firm owners‘ business perceptions?," ifo Working Paper Series 226, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    5. Potrafke, Niklas, 2025. "The economic consequences of fiscal rules," Journal of International Money and Finance, Elsevier, vol. 153(C).
    6. Carsten Hefeker & Michael Neugart, 2024. "Policy rules and political polarization," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 26(4), August.
    7. Björn Kauder & Manuela Krause & Niklas Potrafke, 2021. "Do Left-wing Governments Decrease Wage Inequality among Civil Servants? Empirical Evidence from the German States," Public Finance Review, , vol. 49(1), pages 106-135, January.
    8. Clemens Fuest & Klaus Gründler & Niklas Potrafke & Marcel Fratzscher & Alexander Kriwoluzky & Claus Michelsen & Michael Hüther & Peter Bofinger & Lars P. Feld & Wolf Heinrich Reuter, 2019. "Schuldenbremse — Investitionshemmnis oder Vorbild für Europa? [Debt Brake — Investment Barrier or Role Model for Europe?]," Wirtschaftsdienst, Springer;ZBW - Leibniz Information Centre for Economics, vol. 99(5), pages 307-329, May.
    9. Dilla, Diana, 2017. "Staatsverschuldung und Verschuldungsmentalität [Public Debt and Debt Mentality]," MPRA Paper 79432, University Library of Munich, Germany.
    10. Björn Kauder & Manuela Krause & Niklas Potrafke, 2020. "Reduzieren linke Landesregierungen die Ungleichheit bei der Beamtenbesoldung?," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 73(12), pages 28-31, December.
    11. Björn Kauder & Manuela Krause & Niklas Potrafke, 2018. "Haben sich Landespolitiker ihre Diäten aus wahltaktischen Gründen lieber nach als vor den Wahlen erhöht?," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 71(02), pages 21-24, February.
    12. Dominik Hecker & Dano Meiske & Niklas Potrafke & Marina Riem & Christoph Schinke, 2016. "Schuldenbremsen in den deutschen Bundesländern: Worte und Taten der Landesregierungen," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 69(02), pages 14-22, January.
    13. Manuela Krause & Niklas Potrafke, 2020. "The Real Estate Transfer Tax and Government Ideology: Evidence from the German States," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 76(1), pages 100-120.
    14. Thies Büttner & Luisa Dörr & Stefanie Gäbler & Björn Kauder & Manuela Krause & Niklas Potrafke, 2019. "Überprüfung der Einwohnergewichtung im System des kommunalen Finanzausgleichs in Nordrhein-Westfalen," ifo Forschungsberichte, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 105.
    15. Björn Kauder & Manuela Krause & Niklas Potrafke, 2018. "Electoral cycles in MPs’ salaries: evidence from the German states," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(4), pages 981-1000, August.
    16. Marina Riem, 2016. "Corporate investment decisions under political uncertainty," ifo Working Paper Series 221, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    17. Felix Rösel, 2014. "Co-Partisan Buddies or Partisan Bullies? Why State Supervision of Local Government Borrowing Fails," ifo Working Paper Series 189, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    18. Björn Kauder & Niklas Potrafke & Christoph Schinke, 2017. "Manipulating Fiscal Forecasts: Evidence from the German States," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 73(2), pages 213-236, June.
    19. Florian Dorn & Stefanie Gäbler & Björn Kauder & Manuela Krause & Luisa Lorenz & Niklas Potrafke & Alexander van Roessel & Luisa Dörr, 2017. "Demokratische Vielfalt in Deutschland – unterscheiden sich die Volksparteien noch?," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 70(20), pages 28-37, October.

    More about this item

    Keywords

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    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures

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