Releasing the Brake? The Covid-19 Pandemic, Public Attitudes, and the Schuldenbremse

Despite extensive research on public preferences toward austerity and fiscal rules, whether fiscal consolidation occurs because of or despite public opinion constraints remains debated. In particular, while voters are often assumed to have pro-cyclical fiscal policy preferences – thereby necessitating independent fiscal rules and oversight bodies - it is unclear how public attitudes towards sound fiscal finances evolve during economic downturns when fiscal rules are unlikely to be met, such as during the Covid-19 pandemic. This study examines the impact of the pandemic on public attitudes towards Germany’s debt brake policy, the Schuldenbremse, which imposes strict limits on government borrowing. Using data from the German Internet Panel (GIP), the analysis focuses on changes in public opinion following Chancellor Angela Merkel’s announcement of federal lockdown measures to curb the spread of the Covid-19 virus. As the health situation deteriorated, it became clear that the state had to step in to sustain the economy, hence increasing government spending. The study employs an Unexpected Event during Survey Design methodology alongside Difference-in-Differences estimation approach. Results indicate no significant immediate shift in public evaluation of the Schuldenbremse following the lockdown announcement. However, the findings suggest that public expectations regarding state-level compliance with the fiscal rule worsened over time, with attitudes towards fiscal rules not necessarily hinging on their feasibility. The results contribute to the understanding of public attitudes toward public debt and fiscal consolidation, offering timely insights into the post-pandemic discourse on fiscal rules in Germany and beyond.