IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Fiscal Policy and Rebalancing in the Euro Area: A Critique of the German Debt Brake from a Post-Keynesian Perspective

  • Eckhard Hein
  • Achim Truger

The German debt brake is often regarded as a great success story, and has therefore served as a role model for the Euro area and its fiscal compact. In this paper we fundamentally criticize the debt brake. We show that (1) it suffers from serious shortcomings, and its success is far from certain even from a mainstream point of view; (2) from a Post-Keynesian perspective, it completely neglects the requirements for fiscal policies of member-countries in a currency union and will prevent fiscal policy from contributing to the necessary rebalancing in the Euro area; and (3) alternative scenarios, which could avoid the deflationary pressures of the German debt brake on domestic demand and contribute to internally rebalancing the Euro area, are extremely unlikely, as they would have to rely on unrealistic shifts in the functional income distribution and/or investment and savings behavior in Germany.

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.

File URL: http://www.levyinstitute.org/pubs/wp_776.pdf
Download Restriction: no

Paper provided by Levy Economics Institute in its series Economics Working Paper Archive with number wp_776.

as
in new window

Length:
Date of creation: Sep 2013
Date of revision:
Handle: RePEc:lev:wrkpap:wp_776
Contact details of provider: Web page: http://www.levyinstitute.org

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Louis-Philippe Rochon & Mark Setterfield, 2007. "Interest rates, income distribution, and monetary policy dominance: Post Keynesians and the "fair rate" of interest," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 30(1), pages 13-42, October.
  2. Till van Treeck & Silke Tober & Achim Truger & Michael Brecht, 2010. "Squaring the circle in Euroland? Some remarks on the Stability and Convergence Programmes 2010-2013," IMK Working Paper 3-2010, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  3. Engelbert Stockhammer & Eckhard Hein & Lucas Grafl, 2011. "Globalization and the effects of changes in functional income distribution on aggregate demand in Germany," International Review of Applied Economics, Taylor & Francis Journals, vol. 25(1), pages 1-23.
  4. van Treeck, Till & Sturn, Simon, 2012. "Income inequality as a cause of the Great Recession? : A survey of current debates," ILO Working Papers 470934, International Labour Organization.
  5. Thomas I. Palley, 2011. "Monetary Union Stability: The Need for a Government Banker and the Case for a European Public Finance Authority," IMK Working Paper 2-2011, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  6. Eckhard Hein & Achim Truger, 2006. "Fiscal Policy and Macroeconomic Performance in the Euro area - Lessons for the Future," IMK Working Paper 07-2006, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  7. Clarida, R. & Gali, J. & Gertler, M., 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Working Papers 99-13, C.V. Starr Center for Applied Economics, New York University.
  8. Eckhard Hein & Lena Vogel, 2008. "Distribution and growth reconsidered: empirical results for six OECD countries," Cambridge Journal of Economics, Oxford University Press, vol. 32(3), pages 479-511, May.
  9. Thomas Herndon & Michael Ash & Robert Pollin, 2013. "Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogo ff," Working Papers wp322, Political Economy Research Institute, University of Massachusetts at Amherst.
  10. Philip Arestis, 2011. "Fiscal Policy Is Still an Effective Instrument of Macroeconomic Policy," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 58(2), pages 143-156, June.
  11. Philip Arestis & Malcolm Sawyer, 2013. "Moving from Inflation Targeting to Prices and Incomes Policy," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 60(1), pages 1-17, March.
  12. Marvin Goodfriend & Robert G. King, 1998. "The new neoclassical synthesis and the role of monetary policy," Working Paper 98-05, Federal Reserve Bank of Richmond.
  13. Reinhart, Carmen M. & Rogoff, Kenneth S., 2010. "Growth in a Time of Debt," Scholarly Articles 11129154, Harvard University Department of Economics.
  14. Hein, Eckhard & Truger, Achim, 2013. "Future fiscal and debt policies: Germany in the Context of the European Monetary Union," IPE Working Papers 24/2013, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
  15. C. W.M. Naastepad & Servaas Storm, 2007. "OECD demand regimes (1960-2000)," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 29(2), pages 211-246, January.
  16. Eckhard Hein, 2013. "The crisis of finance-dominated capitalism in the euro area, deficiencies in the economic policy architecture, and deflationary stagnation policies," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 36(2), pages 325-354, January.
  17. Philip Arestis & Malcolm Sawyer, 2004. "On Fiscal Policy and Budget Deficits," European Journal of Economics and Economic Policies: Intervention, Edward Elgar, vol. 1(2), pages 61-74.
  18. Philip Arestis, 2013. "Economic theory and policy: a coherent post-Keynesian approach," European Journal of Economics and Economic Policies: Intervention, Edward Elgar, vol. 10(2), pages 243-255.
  19. Anthony Philip Thirlwall, 1979. "The Balance of Payments Constraint as an Explanation of International Growth Rate Differences," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 32(128), pages 45-53.
  20. A. P. Thirlwall, 2002. "The Nature of Economic Growth," Books, Edward Elgar, number 2579, 6.
  21. Eckhard Hein & Achim Truger, 2006. "Germany's post-2000 stagnation in the European context - a lesson in macroeconomic mismanagement," IMK Working Paper 03-2006, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  22. Eckhard Hein, 2002. "Monetary policy and wage bargaining in the EMU: restrictive ECB policies, high unemployment, nominal wage restraint and inflation above the target," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 55(222), pages 299-337.
  23. Hein, Eckhard & Mundt, Matthias, 2012. "Financialisation and the requirements and potentials for wage-led recovery : a review focussing on the G20," ILO Working Papers 470932, International Labour Organization.
  24. Eckhard Hein & Engelbert Stockhammer, 2010. "Macroeconomic Policy Mix, Employment and Inflation in a Post-Keynesian Alternative to the New Consensus Model," Review of Political Economy, Taylor & Francis Journals, vol. 22(3), pages 317-354.
  25. Katja Rietzler & Dieter Teichmann & Achim Truger, 2013. "IMK Steuerschätzung 2013-2017," IMK Report 81-2013, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  26. Eckhard Hein & Achim Truger & Till van Treeck, 2011. "The European Financial and Economic Crisis: Alternative Solutions from a (Post-) Keynesian Perspective," IMK Working Paper 9-2011, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:lev:wrkpap:wp_776. 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: (Marie-Celeste Edwards)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.