In der kommenden Legislaturperiode entsteht im Bundeshaushalt eine jährliche Finanzierungslücke von mindestens 120 Mrd. Euro, zumindest dann, wenn man die Bedarfe in Infrastruktur, Dekarbonisierung und Verteidigung ernst nimmt. Um Deutschland zu modernisieren, empfiehlt das Papier eine...

A fiscal rule is economically sensible if it ensures sustainable public finances. The German debt brake does no such thing because it is blind to the two key determinants of fiscal sustainability - interest rates and growth. We therefore propose modelling a reformed German fiscal rule on the...

This paper provides a critical assessment of the new EU fiscal framework, with a focus on its implications for public expenditure on the twin green and digital transition. According to the reformed rules, member states may commit to a package of investment and reform to extend the fiscal...

In this paper, we analyse the effects on the economies of the European Union and the rest of the world, of several austerity policies implemented by the Southern European countries, i.e., Portugal, Italy, Greece, and Spain. In particular, we simulate the reduction in one point in the government...

Fiscal rules have been shown to support fiscal discipline by improving government budget balances and restraining the growth of debt. However, questions remain about what enhances their effectiveness and how certain conditions help to build the credibility needed for their survival and success....

This paper studies the impact of austerity measures implemented by the UK government after 2010 on life expectancy and mortality. We combine administrative data sources to create a panel dataset spanning from 2002 to 2019. Using a difference-in-differences strategy, we estimate the effect of...

The European Union's fiscal framework, updated in April 2024, aims to strengthen fiscal sustainability and foster public investment. It requires countries to maintain or gradually reduce their public debts to no more than 60 percent of GDP, and ensures compliance with a 3 percent of GDP deficit...

To consider legal standards in empirical research designs, the qualitative information of the law needs to be transferred in a numerical variable. The challenge in creating such a variable consists in finding the right balance between high information density and transparency while keeping the...

The trade-off between consistent (rule-based) and optimal fiscal policy became evident in the zero lower bound era. With such low interest rates, the argument goes, optimal fiscal policy required extending debt financed public investment spending. But while fiscal rules ensured consistency, they...

This paper develops a sovereign default model with capital accumulation, long-term debt, and fiscal rules with two distortions: debt dilution and private underinvestment. Fiscal rules generate a long-run economic expansion because they mitigate default risk caused by dilution, which increases...

I show that in a canonical HANK model, under a balanced budget fiscal rule, the effect of a nominal interest rate peg is much larger than in a representative agent (RA) model. By contrast, under a standard fiscal rule where tax revenue responds gradually to deviations of the debt-to-GDP ratio...

This research examines impacts of austerity on the political instability in the European Union, defined as elevated levels of electoral volatility and ideological polarization. By analyzing macroeconomic theories that elucidate the effects of austerity on citizens' wealth and the national...

Die im März 2025 reformierte deutsche Schuldenbremse wirft Fragen nach ihrer ökonomischen Wirkung und verfassungsrechtlichen Ausgestaltung auf. In diesem Beitrag werden die Neuerungen interdisziplinär untersucht. Ökonomisch zeigt sich, dass eine wachstumsorientierte Nutzung neuer...

The article examines how the European Commission's proposal to reform the Stability and Growth Pact (SGP) in terms of the pace of public debt reduction may affect basic economic parameters, such as GDP, consumption and investment levels, as well as fiscal parameters like the scale of subsidies...

This Economic Brief analyses the euro area fiscal stance, i.e. the impulse that national and the EU budgets provide to the euro area economy, with a focus on the 2024-2026 period. In the euro area, the European Central Bank (ECB) is entrusted with the objective of maintaining price stability...

Political risk is a significant determinant of bond yields and economic growth in both developed and emerging markets and we develop a debt sustainability analysis model with both channels using a country ratings proxy of political risk. Political risk also affects a sovereign's willingness to...

The European Union is grappling with the challenge of increasing defence expenditure while maintaining fiscal discipline under the Stability and Growth Pact (SGP). The European Commission has proposed activating the national escape clause available under the SGP to accommodate defence spending...

We examine the 2025 U.S. debt limit episode through the lens of financial markets. First, we document an increase in trading activity in the U.S. sovereign CDS market, and we infer a probability of default from CDS premiums. We find that default risk reached 1% by the November 6 Presidential...

European countries face high, rising, and long-lasting spending pressures, calling for a renewed focus on fiscal policy and comprehensive structural reforms to prepare their economies for the future. On top of existing fiscal consolidation needs, spending pressures in five key areas are imminent...

This study estimates the impact of public debt on public investment in Central and Eastern European (CEE) economies. We implement Cross-sectionally Augmented Autoregressive Distributed Lag (CS-ARDL) model, which effectively handles cross-sectional dependence and slope heterogeneity, while...

Political crises often coincide with fiscal crises, with complex causal dynamics at play. We examine the interaction between tax revolts and sovereign risk using a quantitative structural model calibrated to Argentina. In the model, the government can be controlled by political parties with...

Germany is undergoing a major shift in fiscal policy. In response to recent crises and long-term structural challenges, the federal government has introduced a debt-financed spending package that marks a significant departure from past fiscal orthodoxy. This paper investigates the macroeconomic...

Solomon Islands faces the immediate fiscal challenges of rebuilding cash reserves, improving the quality of public spending, and imposing fiscal discipline on domestic borrowing. To address these challenges while financing necessary investments, it is an urgent priority to improve the...

This Selected Issues paper analyzes key barriers to labor force participation (LFP) in Greece using household and cross-country data and draw on the literature and simulations to discuss policy options, particularly for women for whom the LFP gap is the largest. Using household survey data and...

This paper investigates the relationship between public debt and the effectiveness of fiscal policy, presenting evidence of an inverse relationship between government debt and fiscal multipliers. To explain the results, I develop and calibrate a HANK model tailored to the U.S. economy. The model...

We study the social and distributional implications of the euro area (EA) sovereign debt crisis in countries that received external financial assistance for macroeconomic adjustments. Combining granular data from about one million survey interviews with households across euro area states carried...

A fiscal rule is economically sensible if it ensures sustainable public finances. The German debt brake does no such thing because it is blind to the two key determinants of fiscal sustainability - interest rates and growth. We therefore propose modelling a reformed German fiscal rule on the...

Die im Grundgesetz verankerte Schuldenbremse gilt unmittelbar auch für die Bundesländer. Daher ist es im Grundsatz naheliegend, die Regelungen in die Landesverfassung des Landes Nordrhein-Westfalen zu übernehmen, wie es ein Antrag der FDP-Fraktion vorsieht. Der Gesetzentwurf der FDP-Fraktion...