## Options for Creating Fiscal Room for Investment and Other Spending Needs: Germany

_Selected Issues Papers, August 1, 2024_

## Source details

**Canonical URL:** [Options for Creating Fiscal Room for Investment and Other Spending Needs: Germany](https://www.imf.org/en/publications/selected-issues-papers/issues/2024/08/01/options-for-creating-fiscal-room-for-investment-and-other-spending-needs-germany-552871)

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## Bibliographic details
- Authors: Galen Sher
- Published: August 1, 2024
- Series: Selected Issues Papers
- DOI: https://doi.org/10.5089/9798400287145.018

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### Summary and Context
- Germany needs substantially higher levels of public investment while facing rising pension, healthcare, long-term care, and defense expenditures.
- Moderately easing national fiscal rules, as recommended by IMF staff, would create some fiscal room but would not be sufficient on its own.
- The paper explores options to generate additional fiscal room by reducing public spending and increasing revenues while minimizing associated costs to the economy.

### Key Options Explored
- The paper examines areas where Germany’s spending and revenue levels stand out in international comparison.
- Options for generating fiscal room include:
  - (i) finding efficiencies in healthcare spending;
  - (ii) stabilizing the finances of the social security system;
  - (iii) eliminating environmentally harmful subsidies;
  - (iv) raising revenues from goods and services taxes;
  - (v) raising property taxes and closing loopholes in inheritance taxes;
  - (vi) earning higher returns on the government’s financial assets.

### Policy Implications and Recommendations
- A combination of measures will be required because easing fiscal rules alone is insufficient.
- Recommended approaches emphasize:
  - cost-saving efficiencies (notably in healthcare);
  - medium- to long-term fiscal stabilization of social security and pension systems;
  - revenue-enhancing reforms (goods and services taxes, property and inheritance tax changes);
  - subsidy reform to remove environmentally harmful support;
  - improved management of government financial assets to increase returns.

### Areas for International Comparison
- The analysis uses international benchmarks to identify where Germany’s spending and revenue levels stand out and to inform options for reallocation and reform.

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## Content in this bundle

- **Sipea2024034**
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_Source: https://www.imf.org/en/publications/selected-issues-papers/issues/2024/08/01/options-for-creating-fiscal-room-for-investment-and-other-spending-needs-germany-552871_