Marina Riem

Debt Brakes in the German States: Governments' Rhetoric and Actions

Abstract In 2009, a new law on German debt brakes was passed: state governments are not allowed to run structural deficits after 2020. Consolidation strategies initiated between 2009 and 2020 influence if a state can comply with the debt brake in 2020. We describe to what extent government ideology predicts if state governments consolidate budgets and which fiscal adjustment path they choose. Attitudes toward budget consolidation, as expressed by politicians’ rhetoric in the public debate, differed among parties. Anecdotal evidence and descriptive statistics indicate that leftwing governments ran on average higher structural deficits than rightwing governments between 2010 and 2014. Primary deficits, however, hardly differed under leftwing and rightwing governments. Revenues of federal taxes were much higher than expected and facilitated budget consolidation. Leftwing governments did not need to run deficits to design generous budgets. It is conceivable that parties confirmed their identity by using expressive rhetoric, but responded to shifts in public opinion after the financial crisis and pursued more sustainable fiscal policies when in office.

Ideology and Dissent Among Economists: The Joint Economic Forecast of German Economic Research Institutes

Economists, and also economic research institutes, differ in their attitudes toward desirability of economic policies. The policy positions taken can often be determined by ideology. We examine economic policy positions by investigating minority votes in the Joint Economic Forecast of German economic research institutes. The data set consists of voting behavior over the period 1950–2014. Our results show that the German Institute for Economic Research (DIW Berlin) submitted by far the most minority votes, consistent with the popular impression that the DIW exhibits a preference for demand-oriented economic policy and has differed from other leading economic research institutes in this respect. For example, the rate of minority voting of the DIW corresponded to some 300 percent of the rate of minority voting of the RWI Essen. Minority votes display an economic research institute’s identity. When institutes are known to be associated with specific economic policy positions, politicians, clients, and voters well understand how to assess the bias in the policy advice that is given.