Abstract
SummaryIn this paper, institutions are described which are designed to reach sustainability of public finances in the Swiss cantons. These are on the one hand direct popular rights, the fiscal referendum in particular, which allow citizens to express their fiscal preferences. These are on the other hand debt breaks, i.e. institutions, which prevent expenditure and revenue from drifting apart too much in order to limit possible deficits. Both together, fiscal referenda and debt breaks, allow cantons to perform a sustainable fiscal policy. This also holds — and is particularly important — for those cantons that are financially weak. That these institutions are successful is not only demonstrated by descriptive analysis but also supported by econometric analyses. Moreover, they also reduce interest payments cantons have to bear for investment expenditure. Thus, with well-designed institutions federal states might even be able to better follow a sustainable fiscal policy than unitary ones.
Highlights
The debt crises of most OECD countries which followed the financial and economic crises of recent years is today one of the most important political problems which still deserves a solution
It was hoped that the Maastricht criteria which should limit the relation between public debt and public deficit on the one and gross domestic product (GDP) on the other side to 60 and 3 per cent, respectively, would ensure fiscal sustainability
These limits should be observed by those European Union members which wanted to become members of the European Monetary Union (EMU), or which were, after the introduction of the common currency, members of the eurozone, respectively
Summary
The debt crises of most OECD countries which followed the financial and economic crises of recent years is today one of the most important political problems which still deserves a solution. In Germany, Austria and Spain, for example, the federal government is unable to do this as the regional authorities have (to some degree) fiscal autonomy which allows them to have deficits that cannot be controlled by the federal authorities This problem became obvious in Germany in the spring of 2002: Despite the fact that the federal government had – at least in comparison with its predecessors – reduced the issuance of new debt, the Federal Republic of Germany nearly got a ‘blue letter’ from the European Union because the expected deficit of 2002 was 2.7 per cent compared to GDP and, far away from its former stabilisation objective, and quite close to the Maastricht limit of 3 per cent of GDP, which has been crossed in the following years. We conclude with some remarks on the preconditions for effective debt brakes (at the lower governmental levels) as well as on the question what other countries could learn from Switzerland (Section 7)
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