The goal of the project is to describe the influence of a binding deficit rule in force from the year 2020 on the current public budgets. Due to the decline of revenues following the economic crisis and the increase in public expenditures, the Bavarian budget exhibits a substantial deficit in 2009. The same is foreseeable for the next years, as revenues will remain low and interest payments increase. Therefore, this study examines which consolidation measures are necessary to achieve a balanced public budget in the year 2020. Additionally the options for consolidation available to individual states, both on the revenue and expenditure sides, are discussed in this context.
To be able to answer the questions above, firstly the components of the state's revenues and expenditures will be projected until 2020. Considering the revenues, the main element is a detailed simulation of the financial equalization scheme between the German states. All components of the revenues, which are not related to the equalization scheme as well as all components of the expenditures are projected using individual assumptions concerning their developments. From these two budgetary values, the structural deficit is derived. By modifying single growth assumptions, the results will later be checked for their robustness. This examination is followed by an analysis on how public investments in different areas, as physical capital, R&D, etc, impact the state's revenues after the application of the equalization scheme. The study concludes by deducing recommendations for policy.
Federal Statistical Office, Finance Plans of the Free State of Bavaria of the years 2000-2009
Keeping the current consolidation efforts as is, the impact of the economic downturn of the year 2009 and its consequences for the development of revenues and expenditures does not harm the goal of reaching a balanced state budget in 2020. Instead, as early as 2017 a balanced state budget can be reached with the assumptions made in this study. This result is robust vis-à-vis small changes of the assumptions. In addition, the analysis revealed that the options available to a single German state for active consolidation are limited. For the public revenues, the study shows that through the equalization scheme between the states, the economic growth of Germany as a whole is the most relevant factor, which can hardly be influenced by a single state. Considering the expenditures, it is shown that there are many components that evolve in the same direction as the economic development or are fixed in the medium term.
Eck, Alexander, Joachim Ragnitz, Johannes Steinbrecher and Christian Thater: Haushaltskonsolidierung, Infrastruktur und Standortwettbewerb, ifo Dresden Studie 58, München/Dresden 2011.
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