D.he new federal government has big plans. In particular, the traffic light parties want to significantly increase public investments in climate protection, digitization, infrastructure as well as education and research. But how is that financed? Above all, the FDP promised in the election campaign that there should be no tax increases. If you follow the coalition agreement, then this promise should also be kept. However, it also says that the debt brake should be adhered to. In any case, the traffic light parties do not have a two-thirds majority in the Bundestag, so they cannot abolish or change the debt brake at all. A certain amount of loan financing is to be provided through ancillary budgets. It is also planned that existing expenditures will be reallocated or reduced. But whether that is enough to finance the planned expenditure is unclear.
Can taxpayers really count on the fact that they will not be called upon after all? The coalition agreement does not provide for tax increases, but history shows that tax policy promises are not always kept. The best-known example is George Bush, who proclaimed in the US presidential election campaign in 1988: “Read my lips: no new taxes.” He won the election – and one year after inauguration he raised various taxes. In a new study we examined how elections and tax policy are related (“Read my lips? Taxes and elections”, CESifo Working Paper No. 9401). The main result: tax increases occur more frequently in years directly after elections than in other years.
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