Question A:
A constitutional rule that limits the size of budget deficits that governments can run as a share of GDP is an effective way to impose discipline on a country’s public finances.
Responses
Responses weighted by each expert's confidence
Question B:
Germany’s debt brake is a substantial constraint on vital public investment in physical/digital infrastructure and the green transition.
Responses
Responses weighted by each expert's confidence
Question A Participant Responses
| Participant | University | Vote | Confidence | Bio/Vote History |
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 Franklin Allen |
Imperial College London | Bio/Vote History | ||
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It's a difficult question with arguments both ways. In favor, it does seem to have the effect of reducing expenditure in Switzerland although it's unclear what the counterfactual is there. In Germany, it seems to have lead to poor expenditure decisions, particularly investment.
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 Pol Antras |
Harvard | Bio/Vote History | ||
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But that’s only one of the objectives governments should have.
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 Olivier Blanchard |
Peterson Institute | Bio/Vote History | ||
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If the rule is espected, it does indeed impose fiscal discipline. At the potential cost of the potential loss of fiscal policy as a tool for macro stabilisation.
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 Nicholas Bloom |
Stanford | Bio/Vote History | ||
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 Richard William Blundell |
University College London | Did Not Answer | Bio/Vote History | |
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 Maristella Botticini |
Bocconi | Bio/Vote History | ||
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 Agnès Bénassy-Quéré |
Paris School of Economics | Bio/Vote History | ||
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 Elena Carletti |
Bocconi | Bio/Vote History | ||
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 Jean-Pierre Danthine |
Paris School of Economics | Bio/Vote History | ||
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 Paul De Grauwe |
LSE | Bio/Vote History | ||
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 Jan Eeckhout |
UPF Barcelona | Bio/Vote History | ||
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The limit will be renegotiated in an emergency (war, natural disaster,...). And when it is binding, the success/failure depends crucially on other institutional details, such as the ability of small groups to hold up the workings of the government and threats to shut down
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 Ernst Fehr |
Universität Zurich | Did Not Answer | Bio/Vote History | |
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 Xavier Freixas |
Barcelona GSE | Bio/Vote History | ||
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 Nicola Fuchs-Schündeln |
Goethe-Universität Frankfurt | Bio/Vote History | ||
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It is definitely effective (at least to some degree), but the question is whether it is the best way to achieve discipline.
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 Jordi Galí |
Barcelona GSE | Bio/Vote History | ||
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 Luis Garicano |
LSE | Bio/Vote History | ||
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 Yuriy Gorodnichenko |
Berkeley | Bio/Vote History | ||
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 Rachel Griffith |
University of Manchester | Bio/Vote History | ||
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 Veronica Guerrieri |
Chicago Booth | Did Not Answer | Bio/Vote History | |
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 Luigi Guiso |
Einaudi Institute for Economics and Finance | Bio/Vote History | ||
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 Sergei Guriev |
Sciences Po | Bio/Vote History | ||
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 Patrick Honohan |
Trinity College Dublin | Bio/Vote History | ||
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Inflexible constitutional rules have drawbacks that are worse than those associated with leaving thee matters to government.
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 Beata Javorcik |
University of Oxford | Bio/Vote History | ||
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 Jan Pieter Krahnen |
Goethe University Frankfurt | Bio/Vote History | ||
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The constitutional debt brake certainly imposes discipline, and it imposes pressure on non-investment spending. It does, by the way, not necessarily limit investment iff infrastructure investment is financed via private co-financing - typically requiring user fees to be imposed.
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 Botond Kőszegi |
Central European University | Bio/Vote History | ||
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 Eliana La Ferrara |
Harvard Kennedy | Did Not Answer | Bio/Vote History | |
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 Christian Leuz |
Chicago Booth | Bio/Vote History | ||
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 Thierry Mayer |
Sciences-Po | Bio/Vote History | ||
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 Costas Meghir |
Yale | Bio/Vote History | ||
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 Marco Pagano |
Università di Napoli Federico II | Bio/Vote History | ||
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As the German case itself shows, it can be circumvented. Rightly so, because it is a stupid rule.
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 Lubos Pastor |
Chicago Booth | Bio/Vote History | ||
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Effective, yes. Desirable? Unclear.
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 Torsten Persson |
Stockholm University | Did Not Answer | Bio/Vote History | |
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 Christopher Pissarides |
London School of Economics and Political Science | Did Not Answer | Bio/Vote History | |
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 Richard Portes |
London Business School | Bio/Vote History | ||
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It is ineffective insofar as it motivates various efforts to avoid it.
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 Canice Prendergast |
Chicago Booth | Bio/Vote History | ||
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 Carol Propper |
Imperial College London | Did Not Answer | Bio/Vote History | |
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 Imran Rasul |
University College London | Did Not Answer | Bio/Vote History | |
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 Lucrezia Reichlin |
London Business School | Bio/Vote History | ||
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 Ricardo Reis |
London School of Economics | Bio/Vote History | ||
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One number for the deficit will rarely be optimal. And, within the set of sub-optimal second-best rules, there seem to be better alternatives.
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 Rafael Repullo |
CEMFI | Bio/Vote History | ||
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 Hélène Rey |
London Business School | Did Not Answer | Bio/Vote History | |
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 Antoinette Schoar |
MIT | Bio/Vote History | ||
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 Kjetil Storesletten |
University of Minnesota | Bio/Vote History | ||
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 Daniel Sturm |
London School of Economics | Bio/Vote History | ||
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 Silvana Tenreyro |
LSE | Bio/Vote History | ||
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 John Van Reenen |
LSE | Bio/Vote History | ||
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(i) Need to take into account asset side as well as debt (so net worth target important); (ii) overly-constrains government responses to negative shocks
-see background information here |
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 Rick Van der Ploeg |
Oxford | Bio/Vote History | ||
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Due to common pool problem and sometimes weak ministers of finance, it is helpful to have such a rule provided it allows leeway for productive government investments ("golden rule").
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 John Vickers |
Oxford | Bio/Vote History | ||
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Effective at what? At pure discipline, probably yes. In economic terms not unless well designed with respect to cyclical and investment issues.
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 Hans-Joachim Voth |
University of Zurich | Bio/Vote History | ||
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"effective" = yes. Wise? More doubtful.
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 Karl Whelan |
University College Dublin | Bio/Vote History | ||
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I don't think this kind of rule is necessarily effective. It encourages accounting gimmicks whereby certain types of spending appears "off balance sheet". It also has now basis in economy theory as a useful policy rule.
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 Charles Wyplosz |
The Graduate Institute Geneva | Bio/Vote History | ||
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Most governments succumb to temptation unless strongly constrained. This is a straightforward implication of time inconsistency.
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Question B Participant Responses
| Participant | University | Vote | Confidence | Bio/Vote History |
|---|---|---|---|---|
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Franklin Allen |
Imperial College London | Bio/Vote History | ||
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This seems to be the case. They are falling behind in these critical areas because of these constraints.
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Pol Antras |
Harvard | Bio/Vote History | ||
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Olivier Blanchard |
Peterson Institute | Bio/Vote History | ||
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There is a trade off between debt reduction and public investment, be it defense or green spending. The debt brake may well force choosing the wrong point on the trade off curve.
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Nicholas Bloom |
Stanford | Bio/Vote History | ||
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Richard William Blundell |
University College London | Did Not Answer | Bio/Vote History | |
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Maristella Botticini |
Bocconi | Bio/Vote History | ||
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Agnès Bénassy-Quéré |
Paris School of Economics | Bio/Vote History | ||
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Elena Carletti |
Bocconi | Bio/Vote History | ||
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Jean-Pierre Danthine |
Paris School of Economics | Bio/Vote History | ||
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Paul De Grauwe |
LSE | Bio/Vote History | ||
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Jan Eeckhout |
UPF Barcelona | Bio/Vote History | ||
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Ernst Fehr |
Universität Zurich | Did Not Answer | Bio/Vote History | |
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Xavier Freixas |
Barcelona GSE | Bio/Vote History | ||
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Nicola Fuchs-Schündeln |
Goethe-Universität Frankfurt | Bio/Vote History | ||
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Jordi Galí |
Barcelona GSE | Bio/Vote History | ||
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Luis Garicano |
LSE | Bio/Vote History | ||
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Investments do not need to be finances with debt
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Yuriy Gorodnichenko |
Berkeley | Bio/Vote History | ||
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Rachel Griffith |
University of Manchester | Bio/Vote History | ||
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Veronica Guerrieri |
Chicago Booth | Did Not Answer | Bio/Vote History | |
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Luigi Guiso |
Einaudi Institute for Economics and Finance | Bio/Vote History | ||
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Sergei Guriev |
Sciences Po | Bio/Vote History | ||
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Patrick Honohan |
Trinity College Dublin | Bio/Vote History | ||
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Beata Javorcik |
University of Oxford | Bio/Vote History | ||
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Jan Pieter Krahnen |
Goethe University Frankfurt | Bio/Vote History | ||
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Despite my earlier argument, namely that the debt brake can be "loosened" via PPP programs, the political reality in Germany clearly has little tolerance for user fees, and therefore the debt brake also cuts into public spending, moistly on investment - unfortunately.
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Botond Kőszegi |
Central European University | Bio/Vote History | ||
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Eliana La Ferrara |
Harvard Kennedy | Did Not Answer | Bio/Vote History | |
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Christian Leuz |
Chicago Booth | Bio/Vote History | ||
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It is substantial constraint for two reasons. For one, large other spending. The purpose of debt brake is to force politicians to make tradeoffs. Second, the brake makes no distinction between consumption and investment. It could make sense to treat (some) investment differently.
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Thierry Mayer |
Sciences-Po | Bio/Vote History | ||
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Costas Meghir |
Yale | Bio/Vote History | ||
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Marco Pagano |
Università di Napoli Federico II | Bio/Vote History | ||
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Lubos Pastor |
Chicago Booth | Bio/Vote History | ||
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Torsten Persson |
Stockholm University | Did Not Answer | Bio/Vote History | |
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Christopher Pissarides |
London School of Economics and Political Science | Did Not Answer | Bio/Vote History | |
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Richard Portes |
London Business School | Bio/Vote History | ||
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Canice Prendergast |
Chicago Booth | Bio/Vote History | ||
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Carol Propper |
Imperial College London | Did Not Answer | Bio/Vote History | |
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Imran Rasul |
University College London | Did Not Answer | Bio/Vote History | |
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Lucrezia Reichlin |
London Business School | Bio/Vote History | ||
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Ricardo Reis |
London School of Economics | Bio/Vote History | ||
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Rafael Repullo |
CEMFI | Bio/Vote History | ||
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Hélène Rey |
London Business School | Did Not Answer | Bio/Vote History | |
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Antoinette Schoar |
MIT | Bio/Vote History | ||
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Kjetil Storesletten |
University of Minnesota | Bio/Vote History | ||
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Daniel Sturm |
London School of Economics | Bio/Vote History | ||
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Silvana Tenreyro |
LSE | Bio/Vote History | ||
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John Van Reenen |
LSE | Bio/Vote History | ||
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Rick Van der Ploeg |
Oxford | Bio/Vote History | ||
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A debt brake indeed carries the danger that it crowd out productive public investments (as has been the case with the Maastricht criteria).
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John Vickers |
Oxford | Bio/Vote History | ||
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Especially after November’s Constitutional Court ruling
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Hans-Joachim Voth |
University of Zurich | Bio/Vote History | ||
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Low investment reflect political economy considerations; there will never be enough revenue to repair roads and schools and invest in digital infrastructure under the current government. All funds will be diverted to green + social spending.
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Karl Whelan |
University College Dublin | Bio/Vote History | ||
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Climate investment has to be financed whether via debt or taxes. Just because Germany can't borrow more to finance it, doesn't mean it can't be done. But Germany currently has a sustainable debt level, so debt is one way it could be financed and this places restrictions on that.
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Charles Wyplosz |
The Graduate Institute Geneva | Bio/Vote History | ||
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If public investment is really vital, it is possible to cut other spending or raise taxes. The budget constraint is not an option.
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