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 Research Projects at the MPIfG

Growing Capacity or Shrinking Ambition? The Political Economy of Budget Surpluses

Lukas Haffert

In the light of the enormous budgetary problems of the United States and the eurozone, public and academic debate about public finances is dominated by the subject of deficits and debt. This dissertation project takes a different perspective: it is concerned with the fiscal policies of countries that have run budget surpluses for several years. Even when outliers like Luxemburg and Norway are not taken into account, there are eighteen cases of substantial surpluses within the OECD since 1980. The most prominent case is certainly the US surplus of the 1990s, but cases like Canada, Denmark, or New Zealand are much more impressive: these countries were running budget surpluses for more than ten years in a row. Among researchers, these countries are mostly used as role models for balancing public budgets. This project asks a different question: how do countries use their surpluses? Are they saved, used for tax cuts or for financing new spending? The use of surpluses will be examined in a quantitative comparison of all eighteen cases and several in-depth case studies. The analysis will explore the question of whether surpluses are a sign of a growing capacity of the state, or of its shrinking ambition. Project duration: October 2010 to March 2014.
Haffert, Lukas/Philip Mehrtens, 2013: From Austerity to Expansion? Consolidation, Budget Surpluses, and the Decline of Fiscal Capacity. MPIfG Discussion Paper 13/16. Cologne: Max Planck Institute for the Study of Socities, 32 p.
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