IDEAS home Printed from https://ideas.repec.org/p/zbw/zewdip/14034.html
   My bibliography  Save this paper

Fiscal rules and compliance expectations: Evidence for the German debt brake

Author

Listed:
  • Heinemann, Friedrich
  • Janeba, Eckhard
  • Schröder, Christoph
  • Streif, Frank

Abstract

Fiscal rules have become popular to limit deficits and high debt burdens in industrialized countries. A growing literature examines their impact based on aggregate fiscal performance. So far, no evidence exists on how fiscal rules influence deficit expectations of fiscal policy makers. In the context of the German debt brake, we study this expectation dimension. In a first step, we introduce a simple dynamic model in an environment characterized by the lagged implementation of a new rule. Lagged implementation characterizes the setup of the German debt brake and raises credibility issues. In a second step, we analyze a unique survey of members of all 16 German state parliaments and show that the debt brake's credibility is far from perfect. The heterogeneity of compliance expectations in the survey closely corresponds to our theoretical predictions regarding states' initial fiscal conditions, specific state fiscal rules and bailout perceptions. In addition, there is a robust asymmetry in compliance expectations between insiders and outsiders (both for in-state vs out-of-state politicians and the government vs opposition dimension), which we attribute to overconfidence rather than noisy information. These results suggest that national fiscal rules can be strengthened through nobailout rules, sustainable initial fiscal conditions and complementary sub-national rules.

Suggested Citation

  • Heinemann, Friedrich & Janeba, Eckhard & Schröder, Christoph & Streif, Frank, 2014. "Fiscal rules and compliance expectations: Evidence for the German debt brake," ZEW Discussion Papers 14-034, ZEW - Leibniz Centre for European Economic Research.
    • Handle: RePEc:zbw:zewdip:14034
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/97292/1/786784504.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Gohlmann, Silja & Vaubel, Roland, 2007. "The educational and occupational background of central bankers and its effect on inflation: An empirical analysis," European Economic Review, Elsevier, vol. 51(4), pages 925-941, May.
    2. Azzimonti, Marina & Battaglini, Marco & Coate, Stephen, 2016. "The costs and benefits of balanced budget rules: Lessons from a political economy model of fiscal policy," Journal of Public Economics, Elsevier, vol. 136(C), pages 45-61.
    3. Timothy Goodspeed, 2002. "Bailouts in a Federation," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 9(4), pages 409-421, August.
    4. Heinemann, Friedrich & Moessinger, Marc-Daniel & Yeter, Mustafa, 2018. "Do fiscal rules constrain fiscal policy? A meta-regression-analysis," European Journal of Political Economy, Elsevier, vol. 51(C), pages 69-92.
    5. Friedrich Heinemann & Eckhard Janeba, 2011. "Viewing Tax Policy Through Party‐Colored Glasses: What German Politicians Believe," German Economic Review, Verein für Socialpolitik, vol. 12(3), pages 286-311, August.
    6. Momi Dahan & Michel Strawczynski, 2010. "Fiscal Rules and Composition Bias in OECD Countries," CESifo Working Paper Series 3088, CESifo.
    7. Signe Krogstrup & Sébastien Wälti, 2008. "Do fiscal rules cause budgetary outcomes?," Public Choice, Springer, vol. 136(1), pages 123-138, July.
    8. Janeba, Eckhard & Osterloh, Steffen, 2013. "Tax and the city — A theory of local tax competition," Journal of Public Economics, Elsevier, vol. 106(C), pages 89-100.
    9. Roel Beetsma & Massimo Giuliodori, 2010. "Fiscal adjustment to cyclical developments in the OECD: an empirical analysis based on real-time data," Oxford Economic Papers, Oxford University Press, vol. 62(3), pages 419-441, July.
    10. repec:mpr:mprres:4937 is not listed on IDEAS
    11. Heinemann Friedrich & Janeba Eckhard & Moessinger Marc-Daniel & Schröder Christoph & Streif Frank, 2014. "Föderalismus-Präferenzen in den deutschen Landesparlamenten," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 15(1), pages 56-74, February.
    12. Iara, Anna & Wolff, Guntram B., 2014. "Rules and risk in the Euro area," European Journal of Political Economy, Elsevier, vol. 34(C), pages 222-236.
    13. Heinemann, Friedrich & Osterloh, Steffen & Kalb, Alexander, 2014. "Sovereign risk premia: The link between fiscal rules and stability culture," Journal of International Money and Finance, Elsevier, vol. 41(C), pages 110-127.
    14. Heinemann, Friedrich & Janeba, Eckhard & Moessinger, Marc-Daniel & Schröder, Christoph, 2013. "Revenue Autonomy Preference in German State Parliaments," VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79736, Verein für Socialpolitik / German Economic Association.
    15. Francesco Lagona & Fabio Padovano, 2007. "A nonlinear principal component analysis of the relationship between budget rules and fiscal performance in the European Union," Public Choice, Springer, vol. 130(3), pages 401-436, March.
    16. Poterba, James M, 1996. "Budget Institutions and Fiscal Policy in the U.S. States," American Economic Review, American Economic Association, vol. 86(2), pages 395-400, May.
    17. Marc-Daniel Moessinger, 2014. "Do the personal characteristics of finance ministers affect changes in public debt?," Public Choice, Springer, vol. 161(1), pages 183-207, October.
    18. Timothy Besley & Jose G. Montalvo & Marta Reynal‐Querol, 2011. "Do Educated Leaders Matter?," Economic Journal, Royal Economic Society, vol. 121(554), pages 205-205, August.
    19. Xavier Debrun & Laurent Moulin & Alessandro Turrini & Joaquim Ayuso-i-Casals & Manmohan S. Kumar, 2008. "Tied to the mast? National fiscal rules in the European Union," Economic Policy, CEPR;CES;MSH, vol. 23, pages 297-362, April.
    20. Friedrich Heinemann & Eckhard Janeba & Marc-Daniel Moessinger & Christoph Schröder, 2015. "Who Likes to Fend for Oneself? Revenue Autonomy Preferences of Subnational Politicians in Germany," Publius: The Journal of Federalism, Oxford University Press, vol. 45(4), pages 653-685.
    21. Till Cordes & Tidiane Kinda & Priscilla S Muthoora & Anke Weber, 2015. "Expenditure Rules; Effective Tools for Sound Fiscal Policy?," IMF Working Papers 15/29, International Monetary Fund.
    22. Moessinger, Marc-Daniel, 2012. "Do personal characteristics of finance ministers affect the development of public debt?," ZEW Discussion Papers 12-068, ZEW - Leibniz Centre for European Economic Research.
    23. repec:mpr:mprres:4780 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Johannes Blum & Klaus Gründler & Raphael de Britto Schiller & Niklas Potrafke, 2019. "Die Schuldenbremse in der Diskussion – Teilnehmer des Ökonomenpanels mehrheitlich für Beibehaltung," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 72(22), pages 27-33, November.
    2. Janeba, Eckhard & Steinbach, Armin, 2019. "Compliance effects of sovereign debt cuts," International Review of Law and Economics, Elsevier, vol. 60(C).
    3. Blesse Sebastian & Berger Melissa & Heinemann Friedrich & Janeba Eckhard, 2017. "Föderalismuspräferenzen in der deutschen Bevölkerung," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 18(2), pages 145-158, June.
    4. Friedrich Heinemann & Eckhard Janeba & Marc-Daniel Moessinger & Christoph Schröder, 2015. "Who Likes to Fend for Oneself? Revenue Autonomy Preferences of Subnational Politicians in Germany," Publius: The Journal of Federalism, Oxford University Press, vol. 45(4), pages 653-685.
    5. Maaser, Nicola & Stratmann, Thomas, 2018. "Election rules, legislators' incentives, and policy outcomes: Evidence from the mixed member system in Germany," European Journal of Political Economy, Elsevier, vol. 54(C), pages 227-239.
    6. Tsuyoshi Goto & Genki Yamamoto, 2018. "Creative Accounting and Municipal Mergers -A Theoretical and Empirical Approach-," OSIPP Discussion Paper 18E012, Osaka School of International Public Policy, Osaka University.
    7. Asatryan, Zareh & Castellón, César & Stratmann, Thomas, 2018. "Balanced budget rules and fiscal outcomes: Evidence from historical constitutions," Journal of Public Economics, Elsevier, vol. 167(C), pages 105-119.
    8. Blesse, Sebastian & Boyer, Pierre C. & Heinemann, Friedrich & Janeba, Eckhard & Raj, Anasuya, 2019. "European Monetary Union reform preferences of French and German parliamentarians," ZEW Discussion Papers 17-059, ZEW - Leibniz Centre for European Economic Research.
    9. Mathias Dolls & Nils Wehrhofer, 2018. "Attitudes towards Euro Area Reforms: Evidence from a Randomized Survey Experiment," EconPol Working Paper 11, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    10. Zhiyong An & Yilin Hou, 2020. "Debt authority and intentional overstatement of budgetary deficit: evidence from Chinese Provinces," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(2), pages 461-477, April.
    11. Bram Gootjes & Jakob de Haan & Richard Jong-A-Pin, 2019. "Do fiscal rules constrain political budget cycles?," DNB Working Papers 634, Netherlands Central Bank, Research Department.
    12. Gebhard Kirchgässner, 2017. "The debt brake of the German states: a faulty design?," Constitutional Political Economy, Springer, vol. 28(3), pages 257-269, September.

    More about this item

    Keywords

    Budget Deficits; Debt Brake; Credibility; Survey; Fiscal Rules;

    JEL classification:

    • H6 - Public Economics - - National Budget, Deficit, and Debt
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:zewdip:14034. 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: (ZBW - Leibniz Information Centre for Economics). General contact details of provider: http://edirc.repec.org/data/zemande.html .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.