Abstract for: A System Dynamics Approach to Macroeconomic Policy Evaluation - The Case of the German Debt Brake
In the aftermath of the expansive fiscal policy stimuli dealing with the consequences of the world financial crisis of 2007/2008 the public indebtedness around the world has increased dramatically. As a consequence the world-wide interest in policy measures to limit and reduce public debt has increased drastically. In Germany the parliament has altered the constitution which encompasses now a new article regarding a seemingly tight debt rule. In many member states of the EU and around a political discussion has started whether the German debt rule could serve as a guideline. This article explains the German rule and analyses its effects by employing system dynamics methods. The mainly qualitative analysis demonstrates that the German debt rule has important shortcomings and that there are severe “side effects” which have to be addressed by public policy.