Debt Brakes in the German States: Governments' Rhetoric and Actions
36 Pages Posted: 18 Feb 2016
Date Written: January 14, 2016
In 2009 a new law on German debt brakes was passed: state governments are not allowed to run structural deficits after 2020. Consolidation strategies initiated today influence if a state can comply with the debt brake in 2020. We describe to what extent government ideology predicts if state governments consolidate budgets and which fiscal adjustment path they choose. Attitudes towards budget consolidation, as expressed by politicians' words in the public debate, differed among parties. Anecdotal evidence and descriptive statistics indicate that left wing governments ran on average higher structural deficits than right wing governments between 2010 and 2014. Primary deficits, however, hardly differed under left wing and right wing governments. Revenues of federal taxes were much higher than expected and facilitated budget consolidation. Left wing governments did not need to run deficits to design generous budgets. It is conceivable that parties confirmed their identity by using expressive rhetoric, but responded to shifts in public opinion after the financial crisis and pursued more sustainable fiscal policies when in office.
Keywords: government ideology, public debt, debt brake, balanced-budget rule, constitution, expressive rhetoric
JEL Classification: D720, H600, H720
Suggested Citation: Suggested Citation