ifo Schnelldienst 04/2021: Debt Brake as a Bone of Contention

Debt Brake as a Bone of Contention: A Proven Instrument Even in Times of Crisis?

The fight against the Covid 19 pandemic poses considerable challenges for the budgets of Germany’s federal, state, and local governments. In view of the tasks to be tackled, the federal government and almost all the states invoked the debt brake exemption for 2020 and significantly expanded their borrowing. The debt brake will also be suspended once again in 2021. Are the debt brake rules wrongly designed for today? Do we need more flexible criteria for government debt, or should the debt brake once again become the guiding principle for German fiscal policy after the pandemic?

With contributions from

• Ludger Schuknecht, Fiscal Policy Needs a Regulatory Anchor in Good and Bad Times
• Christoph A. Schaltegger and Michele Salvi, Experiences from Switzerland: Supplementing the Debt Brake Instead of Watering It Down
• Jan Schnellenbach, The Debt Brake Remains Sensible
• Thomas Lenk, Christian Bender, and Mario Hesse, Are More Flexible Criteria Needed in the Public Debt Debate?
• Gert G. Wagner, Self-Binding of (Economic) Policy to One-Dimensional Indicators like the Debt Brake (and Coronavirus Incidence) are Methodologically Questionable
• Stefan Korioth, The Debt Brake – in Need of Repair?
• Klaus Gründler, Philipp Heil, and Niklas Potrafke, Public Debt and the Prayer Wheels of Politics
• Dirk Niepelt, The Downside of Debt Brakes