Public finances doped by zero interest rates and buoyant tax revenues – fiscal stance is turning pro-cyclical

Germany’s general government budget (federal government, federal states,
local authorities and social security funds) continues to stand out. In 2017, it
ought to be in the black again – for the fourth year in a row. Four consecutive
years of general government surpluses are unprecedented since 1950!

Accordingly, government revenues have outstripped expenditures in only 11
fiscal years since the early 1950s, and, as a rule, surplus years were promptly
followed by longer phases of (sometimes large) deficits (see chart 32). Given
the above, the following questions arise: What exactly are the reasons behind
the multi-year general government surpluses? How is the current fiscal situation
of the German government to be interpreted in the context of zero interest
rates? What is to be expected in the medium term?