2002 September 30 Monday
German Gov't Response to Recession: Raise Taxes

Okay, suppose your country was faced with recession, deflation, and rising unemployment. What would you do? If you are like me it wouldn't occur to you to have the wisdom (that's a joke kids) that the German government has to raise taxes:

Just a month after Schröder promised Germans not to raise taxes, tax hikes are on the table as a way of increasing the government’s income. The plans to raise the cigarette, inheritance and sales tax paid by companies as well as a proposal to re-introduce the property tax eliminated in 1997 have incensed opposition parties and editorialists alike.

The Greens are holding out for more welfare state spending as a great way to use some of those tax revenues. But the Social Democratic Party is proposing the taxes in order to avoid exceeding EU caps on government debt as a percentage of the GDP. So that leads to an obvious logical suggestion that they are certain to think of in due time: raise taxes even higher so that the debt can be reduced and government spending can be increased at the same time. That won't turn the recession into a depression will it?

Now you might be thinking that in the face of falling prices and recession it would instead be time to pursue an expansionary monetary policy. After all, the German central bank has an admirable record of fighting inflation and the markets would not be worried about an expansionary monetary policy in the face of rising unemployment and falling prices. But oh darn, the Germans gave up their ability to control their monetary policy when they joined the Euro.

President Bush might be thinking that the US should retaliate against the German politicians for what they said about him and about America. I say that is not necessary. The Germans seem intent on hurting themselves far more than Bush could and without any help from us.

Share |      By Randall Parker at 2002 September 30 12:50 PM  Economics Political

g said at December 6, 2004 7:24 AM:


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