Abstract
Summary This paper studies two alternative budget rules to overcome the shortcomings of the current laws for the German Länder: The Swiss debt brake as well as a version incorporating a golden rule presented by the German Council of Economic Experts. A simulation analysis reveals the necessary consolidation path, the loss of benefits, and the recursive development of public debt. Extending the standard simulation method we present a politico-economic approach considering the budget rules in their full complexity. The Swiss debt brake yields stronger restrictions on public debt than the version incorporating the golden rule. Yet applying the simulation to both Länder and their municipalities leads to contrasting results.
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