Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/319647 
Year of Publication: 
2025
Series/Report no.: 
Arbeitspapier No. 01/2025
Publisher: 
Sachverständigenrat zur Begutachtung der Gesamtwirtschaftlichen Entwicklung, Wiesbaden
Abstract: 
Germany is undergoing a major shift in fiscal policy. In response to recent crises and long-term structural challenges, the federal government has introduced a debt-financed spending package that marks a significant departure from past fiscal orthodoxy. This paper investigates the macroeconomic implications of Germany's new fiscal consensus, focusing on how the composition of spending-investment versus consumption-affects inflation, growth, and debt sustainability. Using structural vector autoregressions, we estimate fiscal multipliers across key expenditure types and apply them in a scenario analysis. We focus on three scenarios in which policy makers focus either on consumption, constrained consumption or investment. Our results show that an investment-oriented strategy, particularly those targeting infrastructure and R&D, yields stronger and more sustained GDP growth with more favorable long-term debt outcomes than consumption-oriented approaches. These findings highlight the importance of fiscal quality over quantity. They suggest that strategic allocation of fiscal resources is essential for achieving long-term economic resilience and fiscal sustainability, offering important lessons for Germany and the broader EU as fiscal rules evolve.
Subjects: 
fiscal package
debt
output
Germany
JEL: 
E22
E60
E62
Document Type: 
Working Paper

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