23/10/2025
🔔📣📢📖 EJG PAPER ALERT! [Vol.16(2)]
▶️The R-G Differential: A Policy Instrument for German Federal States to Explore Fiscal Policy Potentials?
▶️ by Christopher Meyer, Hans-Eggert Reimers & Laima Gerlitz (Hochschule Wismar, University of Applied Sciences: Technology, Business Design, Philipp-Müller-Str. 14, 23966 Wismar, Germany)
▶️ https://www.eurogeojournal.eu/index.php/egj/article/view/913
📗📖✏️ Abstract: This paper examines the role of the R–G Differential—the gap between interest rates (R) and economic growth (G)—as a fiscal policy instrument for Germany’s Federal States. While widely studied at the national level, its implications for subnational fiscal sustainability remain underexplored. Building on Domar’s debt dynamics framework, the study calculates state-level R–G Differentials using official budget data from 2013–2023 and classifies states into three distinct fiscal groups. Results show that most Federal States (Länder) experienced periods of r < g, indicating favourable conditions for debt sustainability, yet this potential has not been systematically integrated into fiscal planning. The findings suggest that the R–G Differential could serve as a complementary benchmark to existing fiscal rules, enhancing medium-term planning and resilience under the constraints of Germany’s debt brake and EU fiscal framework. The paper concludes that incorporating R–G monitoring into Federal State-level reporting would not only improve transparency and comparability but also support a more nuanced, forward-looking approach to fiscal policy.
📣 Keywords: Fiscal Policy,Sustainable Debt,Stability Council,Primary Balances,Domar-Model,German Federalism
📣 Research Highlights:
▶️ Demonstrates that favourable R–G conditions allow higher expenditures, including for growth-oriented policies, without necessarily conflicting with debt brakes or fiscal sustainability.
▶️ Positions the R–G Differential as a practical monitoring tool, offering early warnings on the sustainability of fiscal paths and the justification for debt-financed investments.
▶️ Highlights the value of embedding rolling R–G projections into annual budgets to anticipate fiscal pressures and seize policy opportunities.
▶️ Proposes forecast-based integration of r and g estimates into ex-ante budget planning, enabling a probabilistic and adaptive fiscal framework towards sustainable public households.