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How to re-design German fiscal policy rules after the COVID19 pandemic

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  • Hüther, Michael
  • Südekum, Jens

Abstract

The study will first outline the way in which Germany's fiscal policy was driven for several dec-ades by a paradigm that centered on deficit control and reduced state involvement in the econ-omy. It will assess the damage wrought by this strategy - for example, underinvestment in in-frastructure and the worsening of the financial situation in many local municipalities. After-wards, we sketch out a new framework for fiscal policy that might take the evaluation of public needs and the need for more public investment as starting points. The study will also address the response to the Corona pandemic and in what sense it reinforces the need for a new fiscal paradigm. What are the implications of such a shock for fiscal policy rules? And how should Germany and the European Union handle the enormous public debt incurred during this crisis?

Suggested Citation

  • Hüther, Michael & Südekum, Jens, 2020. "How to re-design German fiscal policy rules after the COVID19 pandemic," IW policy papers 25/2020, Institut der deutschen Wirtschaft (IW) / German Economic Institute.
    • Handle: RePEc:zbw:iwkpps:252020
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    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • H6 - Public Economics - - National Budget, Deficit, and Debt

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