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Tax Reform and Debt Sustainability in Germany; An Assessment Using the Global Fiscal Model

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  • Dennis P Botman
  • Stephan Danninger

Abstract

In 2005, the German government announced a far-reaching fiscal adjustment program. This paper uses the IMF’s Global Fiscal Model to study its impact and explores options for addressing long-term pressures from population aging. The growth effects of the planned VAT increase are likely modest, largely owing to the stimulating effect of other tax reductions. The reform will improve the long-term debt path but achieving fiscal sustainability requires further adjustment over the medium term. An additional package of expenditure restraint, entitlement reform, and tax-base broadening compares favorably to other adjustment options. Spillover effects to trading partners of these policies are modest.

Suggested Citation

  • Dennis P Botman & Stephan Danninger, 2007. "Tax Reform and Debt Sustainability in Germany; An Assessment Using the Global Fiscal Model," IMF Working Papers 07/46, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:07/46
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    References listed on IDEAS

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    1. Nicoletta Batini & Papa N'Diaye & Alessandro Rebucci, 2005. "The domestic and global impact of Japan’s policies for growth," Proceedings, Federal Reserve Bank of San Francisco.
    2. Michiel Evers & Ruud de Mooij & Daniël van Vuuren, 2005. "What explains the variation in estimates of labour supply elasticities?," CPB Discussion Paper 51, CPB Netherlands Bureau for Economic Policy Analysis.
    3. Laxton, Douglas & Pesenti, Paolo, 2003. "Monetary rules for small, open, emerging economies," Journal of Monetary Economics, Elsevier, vol. 50(5), pages 1109-1146, July.
    4. Martin Werding & Anita Dehne, 2005. "Modellrechnungen zur langfristigen Tragfähigkeit der öffentlichen Finanzen," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 17, March.
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    Cited by:

    1. Manmohan S. Kumar & Dennis P Botman, 2007. "Global Aging Pressures; Impact of Fiscal Adjustment, Policy Cooperation, and Structural Reforms," IMF Working Papers 07/196, International Monetary Fund.
    2. Murtaza H Syed & Michael Skaarup & Tarhan Feyzioglu, 2008. "Addressing Korea’s Long-Term Fiscal Challenges," IMF Working Papers 08/27, International Monetary Fund.
    3. European Commission, 2011. "Tax Reforms in EU Member States 2011: tax policy challenges for economic growth and fiscal sustainability," Taxation Papers 28, Directorate General Taxation and Customs Union, European Commission.
    4. B. Eugène & P. Bisciari & M. Nautet & P. Stinglhamber & L. Van Meensel, 2013. "Trends in tax systems in the EU," Economic Review, National Bank of Belgium, issue iii, pages 27-45, December.

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