New Constitutional “Debt Brakes” for Euroland Revisited

Abstract

Mause and Groeteke (2012) challenge the view that new constitutional debt brakes are needed to prevent fiscal crises and bailouts in Europe1. In this study, we expand on their public choice framework to explore the effectiveness of debt brakes for fiscal stabilization. We focus on two case studies, Switzerland and Germany. The institutions of direct democracy and fiscal federalism have not empowered German citizens as they have citizens in Switzerland. If these institutional differences explain the effectiveness of the debt brakes enacted in European countries, this poses a greater challenge than is suggested by Mause and Groeteke.