2004 OECD Economic Surveys: Germany 2004

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Germany’s strong export performance is helping to restore growth, but in this 2004 review of Germany’s economy, OECD suggests further measures to create confidence and strength in the economy. In particular, OECD carefully examines linking fiscal consolidation to public sector reform, measures to create employment, and fostering product market competition. This edition’s special feature looks at how to improve Germany’s capacity to innovate.

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Linking Fiscal Consolidation to Public Sector Reform

Over the last three years Germany’s general government deficit has drifted upwards to almost 4 per cent of GDP. While part of the deterioration was caused by the cyclical downswing after 2000, it also reflected the fact that the underlying rate of growth is low. Following the phased income tax reductions, which contributed to the rise in the structural deficit, preference should now be given to balancing the budget over a limited number of years. For the consolidation process to have maximum beneficial effects on economic activity, much will depend on casting it within a consistent framework that links budgetary improvement to public sector spending reform.

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