Germany's New Debt Brake: A Blueprint for Europe?
Many policy reforms are introduced with a significant lag between the time of legislative passage and their actual implementation. This is also the case for a new constitutional rule in Germany, referred to as a debt brake (Schuldenbremse), which requires the federal and state governments to run (almost, cyclically adjusted) balanced budgets from 2016 and 2020 onward, respectively. In this context I analyze within a simple political-economy model, where politicians are less patient than citizens, the costs and benefits of a credibly announced but lagged deficit or debt ceiling. I show that a balanced-budget rule is at best as effective as not having such a rule in terms of implementing the first best. In an important benchmark case, the first best cannot be reached at all. By contrast, a constitutional limit on the future debt level is more effective, even though the first best cannot be always reached when politicians are too impatient.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 68 (2012)
Issue (Month): 4 (December)
|Contact details of provider:|| Web page: http://www.mohr.de/fa|
|Order Information:|| Postal: Mohr Siebeck GmbH & Co. KG, P.O.Box 2040, 72010 Tübingen, Germany|
When requesting a correction, please mention this item's handle: RePEc:mhr:finarc:urn:sici:0015-2218(201212)68:4_383:gndbab_2.0.tx_2-h. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Wolpert)
If references are entirely missing, you can add them using this form.