Essays in Honour of Horst Hanusch
Edited by Andreas Pyka, Uwe Cantner, Alfred Greiner and Thomas Kuhn
Chapter 8: Public Debt and Public Spending in Germany: The Last 40 Years
Alfred Greiner and Norbert Schütt INTRODUCTION 1. In 2005, the German government violated the 3 per cent deficit criterion of the Maastricht criterion for the fourth time. Meanwhile, German government debt also clearly exceeded 60 per cent of GDP, which is the upper bound for the debt ratio of euro area countries. Although these numbers are somewhat arbitrary and there may be better indicators in order to answer the question of whether given deficit and debt ratios pose problems from an economic point of view, these numbers can nevertheless be justified. This can be done by arguing that they serve to limit excessive public sector borrowing, which may give rise to severe economic problems. An important aspect in this context is the question of whether governments remain solvent. While the answer to this question usually does not pose a problem for private households because the latter have finite lifetimes, this does not hold for governments, since governments do not have a natural final period. Instead, they are usually assumed to live infinitely, which causes some problems. Nevertheless, there are studies that suggest answers as to whether fiscal policies are sustainable. Such analyses are indeed important since they yield a picture of how strong the burden for future generations will be, resulting from today’s debt policy. During his academic life, Horst Hanusch has been interested in the dynamic evolution of economies. So, major fields of his research agenda have focused on the explanation of innovations and industry evolution, the behaviour...
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