Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/322495 
Year of Publication: 
2025
Series/Report no.: 
CESifo Working Paper No. 11933
Publisher: 
CESifo GmbH, Munich
Abstract: 
This paper assesses the effectiveness and public finance implications of the German debt brake, a constitutional balanced budget rule introduced in 2009 that aims to ensure a sustainable path of public indebtedness. In order to estimate its causal effects, our paper employs a synthetic control strategy: We compare the counterfactual developments of six relevant outcome variables in a synthetic Germany without this rule to their actual developments. Overall, our empirical analysis suggests that the debt brake bears the main responsibility for the consolidation of German public finances during the 2010s. By reducing the deficit, the debt brake in all likelihood also reduced financing costs, though this effect cannot be solely attributed to it. Furthermore, our analysis finds that the debt brake did not negatively and robustly impact public investment, at least on the federal level. The results are supported by a variety of significance and robustness tests.
Subjects: 
fiscal rules
fiscal federalism
german debt brake
policy evaluation
synthetic control method
JEL: 
C13
C53
D78
H60
H63
H77
Document Type: 
Working Paper
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