Public Finance : Germany

In view of the negative experience of the 1970s, when the government became overinvolved in the country’s management, the present government aims to have a “leaner” state, in other words, to cut back on public spending. By dint of budget savings, a consistent privatization policy and deregulation, it was possible in the 1980s to reduce the public share of the gross domestic product (GDP) from 50.1 percent in 1982 to 45.8 percent in 1989. Today the figure is 49.5 percent. It is the declared goal of the Federal Government to reduce the public share of GDP to the level prior to unification by the turn of the millennium.

The country’s reunification suddenly confronted the government with a host of new responsibilities. The volume and the importance of public finance have increased again accordingly. In 1996 the Federation (including special federal funds and EU contributions), states, municipalities, associations of municipalities and social insurance institutions together spent about DM1,778 billion. This was equivalent to 50.2 percent of the gross domestic product.