German public finances are currently subject to considerable changes in the macro-economic environment and this is probably only the beginning of more far-reaching developments in the future. Like many other European countries, Germany, on the one hand, faces the fiscal problems emerging from an...

Fiscal rules, such as the Excessive Deficit Procedure and the Stability and Growth Pact (SGP), aim at constraining government behavior. Milesi-Ferretti (2003) develops a model in which governments circumvent such rules by reverting to creative accounting. The amount of this depends on the...