Fiscal Institutions and Sustainability of Public Debt in Germany

Abstract

Hoppner and Kastrop examine the role of fiscal institutions and budgetary procedures in Germany with respect to the objective of safeguarding sound public finances in the long-run. The paper analyses the main factors underlying debt developments in Germany in recent decades. It also examines budgetary prospects, pointing to the increasing share of public expenditure which depends on entitlements which cannot be modified over the short-term and to the spending increases stemming from the ageing process. The paper then moves to considering the role of medium-term planning in the German budget and the current approach to long-term issues. In this context, Hoppner and Kastrop evaluate some possible reforms. In particular, they consider the use of indicators concerning the quality of public finances, such as the “Public expenditure for growth and sustainable development”. In view of the federal structure of the country, they also examine the possibility of introducing a National Stability Pact.