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The german stability program: A quantitative assessment

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  • Klaus Weyerstrass

Abstract

In the Maastricht Treaty and the European Stability and Growth Pact, it was recognized that high public deficits and debt levels would endanger the success of the European Economic and Monetary Union. In its stability program, updated in December 2001, the German government published its objective to achieve a balanced general budget in the year 2004. The budget of the central government should be balanced in 2006 [Bundesfinanzministerium, 2001]. This paper analyzes the effects of strict budget consolidation policies on important macroeconomic variables like inflation, unemployment and GDP growth. It is shown that a balanced budget as early as 2004 would necessitate high public consumption and investment. These should be financed by higher indirect taxes, whereas social security contribution rates should be reduced to bring unemployment down. Copyright International Atlantic Economic Society 2002

Suggested Citation

  • Klaus Weyerstrass, 2002. "The german stability program: A quantitative assessment," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 30(3), pages 320-334, September.
    • Handle: RePEc:kap:atlecj:v:30:y:2002:i:3:p:320-334
    DOI: 10.1007/BF02298428
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    References listed on IDEAS

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    1. Clements, Michael P & Hendry, David F, 1995. "Macro-economic Forecasting and Modelling," Economic Journal, Royal Economic Society, vol. 105(431), pages 1001-1013, July.
    2. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
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