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The Debt Brake: Unsafe at Any Speed?

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Abstract

The German debt brake is designed to prevent excessive accumulation of government debt. It is not just a simple fiscal policy rule but enshrined in the country's constitution to prevent political meddling. While it has served its stated purpose, it is also often blamed for Germany's lackluster economic performance in the form of low productivity and low GDP growth when compared to the other countries of the eurozone and especially the U.S. Theoretical research shows that fiscal rules like the debt brake can potentially destabilize economies or lead to real and nominal indeterminacy.

Suggested Citation

  • Thomas A. Lubik, 2025. "The Debt Brake: Unsafe at Any Speed?," Richmond Fed Economic Brief, Federal Reserve Bank of Richmond, vol. 25(22), June.
    • Handle: RePEc:fip:fedreb:100059
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