Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/110028
Authors: 
Hein, Eckhard
Truger, Achim
Year of Publication: 
2013
Series/Report no.: 
Working Paper, Levy Economics Institute 776
Abstract: 
The German debt brake is often regarded as a great success story, and has therefore served as a role model for the Euro area and its fiscal compact. In this paper we fundamentally criticize the debt brake. We show that (1) it suffers from serious shortcomings, and its success is far from certain even from a mainstream point of view; (2) from a Post-Keynesian perspective, it completely neglects the requirements for fiscal policies of member-countries in a currency union and will prevent fiscal policy from contributing to the necessary rebalancing in the Euro area; and (3) alternative scenarios, which could avoid the deflationary pressures of the German debt brake on domestic demand and contribute to internally rebalancing the Euro area, are extremely unlikely, as they would have to rely on unrealistic shifts in the functional income distribution and/or investment and savings behavior in Germany.
Subjects: 
Fiscal Policy
Rebalancing
Functional Income Distribution
Debt Brake
Germany
Euro Area
JEL: 
E25
E61
E62
E64
E65
H62
H63
Document Type: 
Working Paper

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