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Is the debt brake behind Germany's successful fiscal consolidation?

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  • Rietzler, Katja
  • Truger, Achim

Abstract

Both the German federal as well as the general government recorded a surplus for the fourth time in a row in 2017. The fast consolidation after the Great Recession coincided with the transition period for the full introduction of the federal debt brake, which is sometimes interpreted as causality. At the same time Germany's economic performance is better than that of many other countries. For this reason it is nearly impossible to overrate the symbolic power of the debt brake as a seeming success story. In this paper we scrutinise the seeming success story of the debt brake. We carry out a comparative analysis of the "structural" consolidation of public finances in Germany for the period from 1991 until 2017 showing that the German debt brake is not the cause of the successful budget consolidation in Germany since 2010. The improvement of the general government finances since 2010 was smaller than in previous consolidation phases and was strongly supported by a favourable macroeconomic environment, and one-off effects. Finally, neither the general government sector nor the federal government would be in such a good fiscal shape, had the economy evolved less favourably since 2010. Without the blessing of a strong upswing Germany would hardly have become the fiscal role model for Europe and the German debt brake would not have become the blueprint for the European Fiscal Compact.

Suggested Citation

  • Rietzler, Katja & Truger, Achim, 2018. "Is the debt brake behind Germany's successful fiscal consolidation?," IPE Working Papers 105/2018, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    • Handle: RePEc:zbw:ipewps:1052018
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Germany; debt brake; consolidation; Euro crisis; sovereign debt;
    All these keywords.

    JEL classification:

    • E39 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Other
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing

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