Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/331577 
Year of Publication: 
2025
Series/Report no.: 
CESifo Working Paper No. 12111
Publisher: 
Munich Society for the Promotion of Economic Research - CESifo GmbH, Munich
Abstract: 
This paper investigates fiscal sustainability and the prevailing fiscal regime in the Federal Republic of Germany. Using annual data from 1950 to 2023, the long-term relationship between the primary balance and government debt is estimated using a single-equation error correction model (SECM). The results from this long-term analysis do not support the hypothesis of fiscal sustainability, and the SECM proves inconclusive in identifying a dominant fiscal regime, showing a statistically insignificant long-run coefficient and bidirectional Granger causality. Moreover, with the local projections method on quarterly data from 2002 to 2023, this impulse response analysis reveals a clear Money-Dominant (MD) regime. A discretionary positive shock to the primary balance leads to a significant a decrease in real government debt, a result consistent with the MD regime. These findings suggest that while Germany's long-run fiscal framework is ambiguous, its policy dynamics in the 21st century have been characterised as sustainable fiscal practices.
Subjects: 
fiscal sustainability
fiscal theory of the price level
socal projection
JEL: 
C12
C22
E31
E62
E63
H63
Document Type: 
Working Paper
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