Debt Brakes in the German States: Governments' Rhetoric and Actions

36 Pages Posted: 18 Feb 2016

See all articles by Niklas Potrafke

Niklas Potrafke

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Marina Riem

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Christoph Schinke

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Date Written: January 14, 2016

Abstract

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

Potrafke, Niklas and Riem, Marina and Schinke, Christoph, Debt Brakes in the German States: Governments' Rhetoric and Actions (January 14, 2016). CESifo Working Paper Series No. 5696, Available at SSRN: https://ssrn.com/abstract=2731083

Niklas Potrafke (Contact Author)

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute ( email )

Poschinger Str. 5
Munich, 01069
Germany

Marina Riem

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute ( email )

Poschinger Str. 5
Munich, 01069
Germany

Christoph Schinke

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute ( email )

Poschinger Str. 5
Munich, 01069
Germany

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
17
Abstract Views
375
PlumX Metrics