Restrictive fiscal policy

The restrictive fiscal policy (also known as contractive fiscal policy ) is an increase in government revenue or a decrease in government spending . Its counterpart is the expansive fiscal policy . The restrictive fiscal policy is intended to reduce the national deficit or to create a budget surplus with a dampening effect on the economy . A reduction in government spending or a tax increase have a particularly restrictive effect if they lower the income of groups with a low saving and high consumption rate and cannot counter the falling domestic demand through net exportsare compensated, government deficits ( ex post ) can even show increased ( savings paradox ).

aims

In the Law for the Promotion of Stability and Growth of the Economy (StabG), fiscal policy is mentioned as an instrument for achieving the four macroeconomic goals. According to § 1 StabG, the goals are: price level stability , high employment levels , external balance and steady and appropriate economic growth. Here, restrictive fiscal policy measures - especially in times of economic boom - are intended to reduce demand in order to ensure price level stability. In the event of internal devaluation , exportability should be increased or achieved through deflationary price and wage developments.

Implementing measures

An increase in taxes is generally seen as a restrictive fiscal policy measure. When it comes to raising or lowering taxes, however, it depends on whether the incomes of predominantly saving or consuming classes are affected, or whether saving money is promoted or impaired instead of investing and consuming. A tax increase on interest income has an expansive effect, less money is saved, and vice versa. Tax cuts for high incomes, for example, should be viewed rather restrictively; an increase in taxes on withdrawn profits should favor investments by companies and have an expansive effect.

Short-term fiscal policy effects also have special depreciation and changes in depreciation rates . Both types have in common that they are offset over the entire depreciation period because the total depreciation amount remains the same. In other words, a reduction in depreciation rates only has a very short-term effect on increasing taxes; in the following years this will be offset by lower tax rates.

Public investment can be reduced as part of government spending policy. Construction projects that are not absolutely necessary could be postponed or completely canceled. The resulting reduced incoming orders at companies have a demand-lowering effect.

The immediate re-spending of government revenue can be prevented by means of the economic adjustment reserve. The budget deficit is reduced. This results in a decrease in demand and, accordingly, a decrease in the level of production. The classical theory believes that production will return to its natural level in the medium term, as the lower state demand would be compensated for by additional private demand ( crowding-in ). The deflationary policy and the global economic crisis proved wrong and Wilhelm Lautenbach describes the causal connection as follows, in accordance with his experience: “If the state suddenly withdrew as a client on a large scale, this would cause embarrassing shock effects; only to the extent that the private sector replaces him as an investor can he withdraw without causing the risk of setbacks. "

Price stability

A fall in government demand initially leads to a decline in overall demand. This will result in a decline in employment and, as a result, prices will fall. The reason for the sometimes unpopularity of such decisions is that a negative effect (layoffs) precedes the desired goal (price stability).

Current account

In an open economy, a lower price level attracts foreign demand, i.e. reduces the domestic current account deficit or increases a domestic current account surplus. Restrictive fiscal policy, i.e. lowering government spending, can be used for this purpose. Of course, only individual economies can pursue this strategy - if too many follow suit, it is a classic competitive paradox .

Economic phases

In order to flatten an excessive economic upturn, it may be sensible to use restrictive fiscal policy, but there is a risk, if it is not let off again in time, that it will itself create a crisis. If the economy is in a downturn, restrictive fiscal policy has an additional tightening effect. The companies' net borrowing decreases because, as a precaution, less and, if so, only investments are financed from provisions already made. The savings rate rises and the economy becomes illiquid. Generous monetary policy then does not help because it is not used (see also investment trap ).

Individual evidence

↑ Carl Föhl : Circular analysis of wealth formation. An expert opinion. Tübingen 1964. p. 19:
“The effects of the tax burden distribution with a balanced budget depend on whether the taxes are levied on the income of economic entities that would otherwise have used the taxed income shares for consumption expenditure, or on those that they would have saved . "
^ Wilhelm Lautenbach: About credit and production. Frankfurt 1937. p. 35.
↑ Advisory Council on the Assessment of Overall Economic Development: Annual Report 2013/14: Against a backward-looking economic policy. (PDF; 6.0 MB) p. 55, number 95:
“In contrast, a cost reduction caused by job cuts causes negative and possibly persistent effects on the real economy via rising unemployment and falling domestic demand. In theory, lowering wages could in turn carry the risk of a race to lower wages between countries, at the end of which no country has improved its international price competitiveness. "
^ Wolfgang Stützel (ed.), Wilhelm Lautenbach: Interest, credit and production. Tübingen 1952. p. 101:
“[...] the more the state gets into debt, the more companies become free of their debts. Yes, after all, more and more bank creditors or direct creditors of the state [...] If the state were to continue its debt policy, the banks would eventually lose almost all private debtors. "
^ Wolfgang Stützel (ed.), Wilhelm Lautenbach: Interest, credit and production. Tübingen 1952. p. 107:
“If it is a question of surpluses that arise in the regular budget during the upswing, the procedure is completely natural and absolutely correct in terms of economic policy. But if one had to introduce new taxes on a large scale or increase existing taxes in order to reduce the pending debt and avert the risk of over-liquidization of the economy, the well-intentioned attempt to prevent future critical developments could soon itself create a crisis. "
↑ Advisory Council on the Assessment of Overall Economic Development: Annual Report 2013/14: Against a backward-looking economic policy. (PDF; 6.0 MB) p. 47:
"The basic direction of financial policy in the euro area should therefore remain restrictive in the forecast period and have a dampening effect on economic development."
↑ Advisory Council on the Assessment of Overall Economic Development: Annual Report 2013/14: Against a backward-looking economic policy. (PDF; 6.0 MB) p. 76:
"The significantly lower demand for corporate loans - especially from large companies - is, according to the survey, mainly due to the use of internal financing by companies."
^ Wolfgang Stützel (ed.), Wilhelm Lautenbach: Interest, credit and production. Tübingen 1952. p. 91:
"Since it is now exactly the opposite, according to observation and experience, since the savings of non-entrepreneurs are still growing overall, only a further illiquidization of the economy can be expected from this side."
↑ Advisory Council on the Assessment of Overall Economic Development: Annual Report 2013/14: Against a backward-looking economic policy. (PDF; 6.0 MB) p. 81, box 7:
“Equipment investments in Germany fell in 2012 despite the actually favorable fundamental data, such as the very low interest rate level. Increased uncertainty is often cited as the cause of the weak development. "
↑ Wolfgang Stützel: Economic balance mechanics. (Reprint of the 2nd edition) Tübingen 2011. ( online ) p. 166:
“Even if certain interest-sensitive private investments should initially rise under the impression of the credit reduction, the income surpluses of the non-entrepreneurs and thus the expenditures surpluses of the entrepreneurs through fiscal and austerity policies can still do so be increased, so that entrepreneurial profits fall , the advantage of the interest rate cut is overcompensated and the total investment is slowed down permanently; because it is a fact of experience that investments are more strongly influenced by changes in the (gross) profit prospects than by changes in the interest rate. "

[1] Carl Föhl : Circular analysis of wealth formation. An expert opinion. Tübingen 1964. p. 19:
“The effects of the tax burden distribution with a balanced budget depend on whether the taxes are levied on the income of economic entities that would otherwise have used the taxed income shares for consumption expenditure, or on those that they would have saved . "

[2] Wilhelm Lautenbach: About credit and production. Frankfurt 1937. p. 35.

[3] Advisory Council on the Assessment of Overall Economic Development: Annual Report 2013/14: Against a backward-looking economic policy. (PDF; 6.0 MB) p. 55, number 95:
“In contrast, a cost reduction caused by job cuts causes negative and possibly persistent effects on the real economy via rising unemployment and falling domestic demand. In theory, lowering wages could in turn carry the risk of a race to lower wages between countries, at the end of which no country has improved its international price competitiveness. "

[4] Wolfgang Stützel (ed.), Wilhelm Lautenbach: Interest, credit and production. Tübingen 1952. p. 101:
“[...] the more the state gets into debt, the more companies become free of their debts. Yes, after all, more and more bank creditors or direct creditors of the state [...] If the state were to continue its debt policy, the banks would eventually lose almost all private debtors. "

[5] Wolfgang Stützel (ed.), Wilhelm Lautenbach: Interest, credit and production. Tübingen 1952. p. 107:
“If it is a question of surpluses that arise in the regular budget during the upswing, the procedure is completely natural and absolutely correct in terms of economic policy. But if one had to introduce new taxes on a large scale or increase existing taxes in order to reduce the pending debt and avert the risk of over-liquidization of the economy, the well-intentioned attempt to prevent future critical developments could soon itself create a crisis. "

[6] Advisory Council on the Assessment of Overall Economic Development: Annual Report 2013/14: Against a backward-looking economic policy. (PDF; 6.0 MB) p. 47:
"The basic direction of financial policy in the euro area should therefore remain restrictive in the forecast period and have a dampening effect on economic development."

[7] Advisory Council on the Assessment of Overall Economic Development: Annual Report 2013/14: Against a backward-looking economic policy. (PDF; 6.0 MB) p. 76:
"The significantly lower demand for corporate loans - especially from large companies - is, according to the survey, mainly due to the use of internal financing by companies."

[8] Wolfgang Stützel (ed.), Wilhelm Lautenbach: Interest, credit and production. Tübingen 1952. p. 91:
"Since it is now exactly the opposite, according to observation and experience, since the savings of non-entrepreneurs are still growing overall, only a further illiquidization of the economy can be expected from this side."

[9] Advisory Council on the Assessment of Overall Economic Development: Annual Report 2013/14: Against a backward-looking economic policy. (PDF; 6.0 MB) p. 81, box 7:
“Equipment investments in Germany fell in 2012 despite the actually favorable fundamental data, such as the very low interest rate level. Increased uncertainty is often cited as the cause of the weak development. "

[10] Wolfgang Stützel: Economic balance mechanics. (Reprint of the 2nd edition) Tübingen 2011. ( online ) p. 166:
“Even if certain interest-sensitive private investments should initially rise under the impression of the credit reduction, the income surpluses of the non-entrepreneurs and thus the expenditures surpluses of the entrepreneurs through fiscal and austerity policies can still do so be increased, so that entrepreneurial profits fall , the advantage of the interest rate cut is overcompensated and the total investment is slowed down permanently; because it is a fact of experience that investments are more strongly influenced by changes in the (gross) profit prospects than by changes in the interest rate. "