OECD Economics Department Working Papers

Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.

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Consolidating Germany's Finances

Issues in Public Sector Spending Reform

While the German federal fiscal system has been successful in promoting a high standard of living even in regions whose economic capacity is low, tensions have emerged. Firstly, it has been difficult to ensure a sustainable fiscal policy, and the size of the overall deficit makes it difficult for the automatic stabilisers to operate freely. Second, overlapping responsibilities between governments and the financing of public spending programmes via inter-governmental transfers provide individual governments with little incentives to contain costs and demand. Thirdly, social spending often discourages a higher utilisation of labour. Furthermore, public expenditure is going to have to cope with increasing pressure due to the substantial deterioration of the old-age dependency ratio projected for the next years and decades and the continuing fiscal burden associated with reunification. Hence, continuing the process of fiscal consolidation and improving the quality of government ...


Keywords: fiscal policy, East Germany, social assistance, health care, education, domestic stability pact, federal fiscal relations
JEL: H5: Public Economics / National Government Expenditures and Related Policies; H77: Public Economics / State and Local Government; Intergovernmental Relations / Intergovernmental Relations; Federalism; Secession
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