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Working Paper
Fiscal consolidation using the example of Germany
After the run up in debt-to-GDP ratios around the world in the aftermath of the financial crisis and the associated lower fiscal space, the question of prudent fiscal consolidation is back on the agenda. In this paper, I study the macroeconomic implications of fiscal consolidation triggered by the newly introduced "debt brake" in Germany, which dampens the accumulation of debt. I address this question using a medium-size new Keynesian DSGE model for Germany. The model includes the government debt-to-GDP ratio, government transfers, labour income tax, consumption tax and capital tax ...