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The GIPS countries, the southern European crisis countries, have seen depressed output dynamics and high unemployment rates during the great recession following the 2007–2008 financial crisis. This paper considers the effects of measures that seek to improve competitiveness by reducing real unit labour costs. The results are derived in structural vector autoregressive models for each of the GIPS counties as well as two reference countries, Germany and the Netherlands. The responses of output and unemployment to innovations in real unit labour costs are economically and statistically significant for Germany and the Netherlands, whereas the responses are typically muted and imprecise estimated for the GIPS countries. The small and uncertain effects raise doubts regarding the efficacy of measures that seek to lower real unit labour costs in the GIPS countries. [ABSTRACT FROM AUTHOR]

In response to the recent sovereign debt crisis, the member states of the European Union agreed to enact balanced budget rules in their national legislation. However, little is known about the public's opinion of balanced budget rules. To fill this gap, we conducted a survey among 2,000 representatively chosen German citizens. Our findings suggest that 61 % of the German population supports the debt brake, whereas only 8 % oppose it. However, approval rates differ notably among various subgroups of the population. The debt brake enjoys greater support among high-income earners and among those well-informed about the future costs of deficit spending. People who do not trust politicians would like to see the government's hands tied even more tightly. Opinions about the debt brake also differ markedly across the supporters of different political parties. [ABSTRACT FROM AUTHOR]

This paper explores whether and how political biases arise in an institutional setting where revenue forecasting is delegated to a body that includes experts from institutions neither part of nor controlled by the government. The empirical analysis focuses on the performance of German federal tax revenue forecasts, in the preparation of which the advice of external experts has a long tradition as an institutional safeguard. While, on average, revenue forecasts turn out to be unbiased, the results show that the government exerts an influence. In particular, optimism/pessimism in the government's GDP forecast helps to explain why the revenue forecast turns out too optimistic/pessimistic. In addition, governmental estimates of the revenue effects of tax-law changes are found to contribute to forecast errors. [ABSTRACT FROM AUTHOR]

Germany and the Czech Republic, Hungary, Poland, and Slovakia (the CE4) have been in a process of deepening economic integration which has lead to the development of a dynamic supply chain within Europe—the Germany-Central European Supply Chain (GCESC). Model-based simulations suggest two key policy implications: first, as a reflection of strengthening trade linkages, German fiscal spillovers (stemming from higher public consumption) to the CE4 and more broadly to the rest of the euro area, have increased over time, but are still relatively small. This is explained by the supply chain nature of trade integration: final demand in Germany is not necessarily the main determinant of CE4 exports to Germany. Second, increased trade openness in both Germany and the CE4 implies a greater exposure of the GCESC to global shocks. However, owing to its strong fundamentals—including sound balance sheets and its safe haven status—Germany plays the role of a regional anchor of stability by better absorbing shocks from other trading partners instead of amplifying their transmission across the GCESC. [ABSTRACT FROM AUTHOR]

While there is ample evidence on the linkage between public debt and economic growth for national economies, far fewer investigations have been carried out at the subnational level. In this paper, we therefore study the long- and short-term relationship between regional public debt intensities and economic output (growth) for German federal states between 1970 and 2010. We estimate dynamic error correction models, which account for heterogeneous transmission mechanisms among federal states and the presence of unobserved common factors such as global macroeconomic shocks. Our findings hint at a significantly negative relationship between regional public debt and per capita GDP in the long run. We further demonstrate that this negative long-term effect is not negligible for the interregional differences in per capita GDP levels. Linking our empirical findings to the current policy debate on fiscal consolidation, we show along the lines of the German case that the decision of enacting a constitutional debt brake for subnational governments to limit the degree of discretionary spending policies together with supplementary measures – such as joint capital market operations by the central and state-level governments to lower borrowing costs – may provide new stimuli for a European-wide debate on the feasibility of solid fiscal consolidation. [ABSTRACT FROM AUTHOR]

We examine how electoral motives influence active labor market policies that promote (short term) job-creation. Such policies reduce measures of unemployment. Using German state data for the period 1985 to 2004, we show that election-motivated politicians pushed job-promotion schemes before elections. [ABSTRACT FROM AUTHOR]

In a New Keynesian DSGE model with non-Ricardian consumers, we show that automatic stabilization according to a countercyclical spending rule following the idea of the debt brake is well suited both to steer the economy and in terms of welfare. In particular, the adjustment account set up to record public deficits and surpluses serves well to keep the level of government debt stable. However, it is essential to design its feedback to government spending correctly, where discretionary lapses should be corrected faster than lapses due to estimation errors. [ABSTRACT FROM AUTHOR]

Do public sector wages have an influence in the determination of private sector wages? This article tries to isolate the pure signalling effect that one sector might exert on the other by controlling for other determinants of wages (prices, productivity, institutions) for the main euro area economies (Germany, France, Italy and Spain) and the periods 1980-2007 and 1991-2007. It exploits available quarterly information not yet used in the literature, and combines different data sources in the framework of mixed-frequencies time series models. The quarterly frequency of our data allows us to decompose the casual effects into purely intra-annual effects and across-years effects. Our conclusions establish the existence of purely intra-annual links between public and private sector wages (signalling effect). There is strong evidence of public wages' leadership, either in conjunction with bi-directional links from the private sector (Spain, Italy) or pure public sector leadership (Germany and France in the sample 1991-2007). Our empirical approach allows us to also unveil a complex and rich structure of indirect links of wages with other variables (prices, productivity and institutional factors). [ABSTRACT FROM AUTHOR]

This paper analyses how fiscal adjustment comes about when both central and sub-national governments are involved in consolidation. We test sustainability of public debt with a fiscal rule for both federal and regional government. Results for the German Länder show that lower tier governments bear a relatively smaller part of the burden of debt consolidation, if they consolidate at all. Most of the fiscal adjustment occurs via central government debt. In contrast, both the US federal and state levels contribute to consolidation of public finances. [ABSTRACT FROM AUTHOR]

In this paper we test whether German public debt has been sustainable by testing how the primary surplus to GDP ratio reacts to the debt to GDP ratio. We apply semi-parametric regressions with time depending coefficients. This test shows that the mean of the coefficient relevant for sustainability is significantly positive over the time period considered. However, there is a negative trend in that coefficient which seems to have ceased to decline only in the middle to late 1990s. [ABSTRACT FROM AUTHOR]

This paper studies the perception of fairness of the income-tax splitting benefit of married couples under the German income-tax régime using interview data from 219 North German employees. The great majority of subjects disapprove of the present boon of tax splitting, which is considered as being excessive. No self-serving bias was observed in the responses. Tax benefits to married couples considered as justified are much smaller than under the present German tax régime. Moreover, the tax benefits which are perceived as equitable are relatively more generous for the higher income strata. [ABSTRACT FROM AUTHOR]