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Abstract
This article studies the tax and fiscal policies of the second grand coalition under Chancellor Merkel. It demonstrates that the government contented itself with merely administering balanced budgets or surpluses, instead of seizing the opportunity of exceptionally good economic conditions and low interest rates to implement important structural reforms and increase investment in public infrastructure. This outcome can be explained by two factors: (1) diverging fiscal policy preferences between the two coalition partners, and (2) uncertainty in the face of the continuing euro crisis. The article substantiates this claim on the basis of quantitative data on policy outputs and the structure of revenues and expenses, and by qualitatively tracing the policy processes leading to the few fiscal decisions that were of major importance: the reform of inheritance taxation, packages against tax evasion and avoidance, and a reform of the federal equalisation payments system. The analysis shows that in these more far-reaching decisions the coalition acted in response to external constraints – including decisions from the constitutional court, international cooperation, and legal action by Länder governments – rather than on its own political initiative.
DISCLOSURE STATEMENT
No potential conflict of interest was reported by the author.
ABOUT THE AUTHOR
Dr Thomas Rixen is Professor of Public Policy at the University of Bamberg. His research interests are comparative and international political economy, institutionalist theory and economic, financial and tax policies. Find more information on him and his work at http://thomasrixen.eu/.
Notes
1 There was a minimal deficit in 2013 that was compensated by substantial surpluses in the following years.
2 Education and research expenditures are not defined as investments in national accounts. However, there is a consensus among economists that education and research expenditures have substantial positive effects on growth. They have the largest macroeconomic return among all public expenditure.
3 A draft of the contract allocated €5bn to higher education institutions and education in general, as well as €3bn to research and development. These figures disappeared in the final document.
4 The assessment is inspired by the approach of Wagschal (Citation2006). Discussions of the legislative activity of the first grand coalition as well as the former coalition of CDU/CSU and FDP are presented in Rixen (Citation2010, 2014).
5 However, an in-depth evaluation of the complete observation period suggests that opposing majorities are not associated with lower governmental activity, nor are parallel minorities associated with increased activity (Wagschal Citation2006, 247–248).
6 Overall, it is striking that left-wing governments did not increase the tax burden.
7 It must be noted in this context that the evaluation only relates to the revenue side. The overall relief for citizens is greater if public expenditure increases are included.
8 One could object that the problem predominantly emphasised by the SPD – growing inequality and unfair distribution of income and wealth – was by no means solved by this approach so that perceived problem pressure remained for the SPD. This is correct. However, this problem definition, mainly put forward by left-wing social democrats, did not take hold in the coalition. This shows that objective problem pressure does not ‘automatically’ lead to policy changes, which rather depend on political perceptions and framing. It follows that political actors may not solve long-term problems, or at least not immediately, because they are less pressing (see e.g. Obinger Citation2015). See also the brief discussion on the normative evaluation of the grand coalition’s fiscal policy in section 6.
9 The SPD’s approach back then was just as significant a retreat from classical social democratic fairness perceptions as that associated with the social and labour market policies known as the Hartz reforms. While the party has received a lot of public criticism from its constituency for the latter, tax policy reforms went largely undisputed.
10 It is an interesting puzzle why tax increases on top earners are opposed by the electorate. The main reason for this may be businesses’ lobbying and PR strategies (Emmenegger and Marx Citation2018).