In Germany and in the EU legal provisions exist in order to restrict public deficits and public debt. It seems that in the past these legal debt limits have been hardly respected by policymakers in their decisions on public households. In addition, during the worldwide financial and economic crisis since 2008 fiscal deficits have exploded in nearly all industrial and developing countries. This paper raises the question whether effective constraints on public debt are illusionary. It starts from the traditional welfare- theoretical discussion on the pros and cons of public debt. Then, public deficits are analyzed from a public-choice perspective, resulting in the conclusion that public debt should be effectively regulated. As the existing legal limits in Germany and in the EU apparently do not fulfill this requirement, some alternatives are outlined which could provide better safeguarding against irresponsible policymakers. Finally, a preliminary assessment of the new German „debt brake“ shows that, though this reform is an important progress, doubts remain concerning its actual future performance.
© 2010 by Lucius & Lucius, Stuttgart