Germany after Qualification for EMU: A Disaggregated Approach to the Analysis of Structural Public Finance Developments

This paper analyses the structural developments underlying the evolution of public finances in Germany after qualification for EMU. For this purpose, we extend a disaggregated approach to cyclical adjustment in a way that allows us inter alia to distinguish the impact of discretionary fiscal policy measures from other structural influences. Furthermore, we assess the relevance of the severe forecasting error with respect to macroeconomic developments after 2000 for deficit developments. Our analysis shows that positive transitory influences covered a structural deterioration between 1997 and 2000, while in the last two years negative transitory influences offset a slight improvement in the structural deficit ratio. A significant part of the structural worsening between 1997 and 2003 is not directly linked to recent fiscal policy decisions. Overall, the deterioration was mainly due to weak revenue side developments, while the expenditure side did contribute slightly to consolidation.