The german stability program: A quantitative assessment |
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Authors: | Klaus Weyerstrass |
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Institution: | (1) Halle Institute for Economic Research, Germany |
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Abstract: | In the Maastricht Treaty and the European Stability and Growth Pact, it was recognized that high public deficits and debt
levels would endanger the success of the European Economic and Monetary Union. In its stability program, updated in December
2001, the German government published its objective to achieve a balanced general budget in the year 2004. The budget of the
central government should be balanced in 2006 Bundesfinanzministerium, 2001]. This paper analyzes the effects of strict budget
consolidation policies on important macroeconomic variables like inflation, unemployment and GDP growth. It is shown that
a balanced budget as early as 2004 would necessitate high public consumption and investment. These should be financed by higher
indirect taxes, whereas social security contribution rates should be reduced to bring unemployment down. |
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