Lars Feld, Christoph Schmidt, Isabel Schnabel, Volker Wieland, 12 September 2018

Simplicity and transparency are essential to strengthen the effectiveness of fiscal rules and to ensure sustainable public finances; thus the German Council of Economic Experts has criticised recent reforms of the European fiscal framework for exacerbating their complexity. This column proposes a redesign of the existing fiscal framework together with a drastic reduction in exception and escape clauses. The reformed framework employs a modified expenditure benchmark as an annual operational target. In addition, it implements the structural deficit rule as its medium-term target through a multi-purpose adjustment account, and a pre-specified debt ratio as its long-term limit achieved with a debt-correction factor.

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