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

Author

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  • Niklas Potrafke

    ()

  • Marina Riem
  • Christoph Schinke

    ()

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 today 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 towards budget consolidation, as expressed by politicians’ words 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

  • Niklas Potrafke & Marina Riem & Christoph Schinke, 2016. "Debt Brakes in the German States: Governments' Rhetoric and Actions," CESifo Working Paper Series 5696, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_5696
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    Cited by:

    1. 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.
    2. repec:mhr:finarc:urn:sici:0015-2218(201706)73:2_213:mffeft_2.0.tx_2-2 is not listed on IDEAS
    3. 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.
    4. Dilla, Diana, 2017. "Staatsverschuldung und Verschuldungsmentalität
      [Public Debt and Debt Mentality]
      ," MPRA Paper 79432, University Library of Munich, Germany.
    5. 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.
    6. Manuela Krause & Niklas Potrafke, 2017. "The Real Estate Transfer Tax and Government Ideology: Evidence from the German States," CESifo Working Paper Series 6491, CESifo Group Munich.
    7. 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.
    8. 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.
    9. 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.
    10. 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.
    11. repec:ces:ifosdt:v:70:y:2017:i:20:p:28-37 is not listed on IDEAS

    More about this item

    Keywords

    government ideology; public debt; debt brake; balanced-budget rule; constitution; expressive rhetoric;

    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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