Tax Reform and Debt Sustainability in Germany: An Assessment Using the Global Fiscal Model

Author/Editor:

Dennis P Botman ; Stephan Danninger

Publication Date:

February 1, 2007

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

In 2005, the German government announced a far-reaching fiscal adjustment program. This paper uses the IMF’s Global Fiscal Model to study its impact and explores options for addressing long-term pressures from population aging. The growth effects of the planned VAT increase are likely modest, largely owing to the stimulating effect of other tax reductions. The reform will improve the long-term debt path but achieving fiscal sustainability requires further adjustment over the medium term. An additional package of expenditure restraint, entitlement reform, and tax-base broadening compares favorably to other adjustment options. Spillover effects to trading partners of these policies are modest.

Series:

Working Paper No. 2007/046

Subject:

Corporate income tax Expenditure Fiscal policy Personal income tax Public debt

English

Publication Date:

February 1, 2007

ISBN/ISSN:

9781451866100/1018-5941

Stock No:

WPIEA2007046

Pages:

30

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