Public Debt Rules Go Hand in Hand with Higher Growth

Public debt rules anchored in a country’s constitution, such as the German debt brake, go hand in hand with stronger economic growth. The ifo researchers Klaus Gruendler and Niklas Potrafke demonstrate this relationship in a new research paper. “Looking ahead to the time after the economic recovery, the question arises as to how we can bring high debt ratios back down again,” Gruendler and Potrafke write.

“Our findings suggest that debt rules enshrined in the constitution are appropriate instruments for reconciling long-term fiscal sustainability with positive economic growth.” These findings by the ifo Center for Public Finance and Political Economy are based on analyses of historical data (1789–1950) for 54 countries, a modern dataset (1985–2015) for 166 countries, and data for 206 regional governments from ten countries with federal-state systems.