This paper analyzes German and Spanish fiscal policy using simple policy rules. We choose Germany and Spain, as both are Member States in the European Monetary Union (EMU) and underwent considerable increases in public debt in the early 1990s.We focus on the question, how fiscal policy behaves...

Since 1970 public debt in Germany has risen dramatically. The debt growth has neither been stopped by the constitutional deficit limit, nor by the European Stability and Growth Pact. At the moment, the cyclical upswing triggers increasing tax revenues and diminishing deficits. Yet this does not...