Volker Wieland: Plans of grand coalition may threaten sustainability of economic growth

The coalition agreements between CDU, CSU and SPD regarding tax policy, the pension system and the labor market may threaten the sustainability of the economic growth in Germany. This is the conclusion drawn by Volker Wieland, member of the German Council of Economic Experts and Managing Director of the IMFS, based on the based on the Council’s annual report. His analysis is available as commentary for the Economic Policy Center of the Universities of Vienna and St. Gallen.

The fiscal conditions were extremely well the moment, however, this would not last forever, Wieland warned. Therefore, the coalition partners should use this fiscal space for grwoth-friendly reforms. First and foremost, CDU, CSU and SPD should address the so-called "cold progression". The  progressive  income  taxrate  gives  rise  to  “bracket  creep”  when  inflation  rates  are  positive,  putting strain  on  middle-income  groups,  in  particular.  A  reform  of  the  income  tax should be used to return the increase in  tax revenue from bracket creep.

The complete commentary is only available in German.

Volker Wieland
Wirtschaftspolitisches Zentrum, Kommentar Nr. 19
"Für eine zukunftsorientierte Wirtschaftspolitik"
(PDF)