In the recent economic debate on the design of fiscal policy in Germany it is gene rally agreed that the total hurden of taxes and levies has to be reduced. In this paper, arguments that form the basis of this claim are evaluated within a calihrated Real Business Cycle model. The analysis shows...

How should public debt be managed when uncertainty about the business cycle is widespread and debt levels are high, as in the aftermath of the last financial crisis? This paper analyzes optimal fiscal policy with ambiguity aversion and endogenous government spending. We show that, without...