Research in the field of public finance is a central topic in economics, and with good cause. Almost all governmental measures, either on federal, federal state or municipal level, have an indirect or direct effect on the budgets of the private sector and on the resources of households. On the other hand, the economic decisions of firms and citizens, too, have an impact on the evolution of public budgets on all levels of government. Public finances and private economic activities, thus, are inextricably linked and influence one another in many ways. State-provided services, such as public goods, transfer payments, subsidies and social welfare systems are financed by taxes, contributions and fees and - in past and present - to a large extent by public debt. The economic development of a country and the economic prosperity of its citizens and businesses are determined to a great extent by the structures and means of public financing and, inversely, by the policy priorities that are embodied in the composition of public spending.
The recent financial and economic crisis and its aftermath clearly show the strong impact of economic developments on public budgets. On the other hand, it also reveals how political measures and their consequences (e.g. spiraling public debt) influence the economic outlook. At RWI, the research division “Public Finance” analyzes the above-mentioned effects and interdependencies in various research strands. Key projects investigate the effects of the crisis on public budgets and search for ways and institutional solutions to reduce extremely high debt. Against the backdrop of future demographic change and with view to the impact this change might have on the sustainability of public finances and the national welfare system, particular attention is given to strategies that address public budget consolidation and far-reaching reforms of the welfare system.
Methodologically, the research is driven by an empirical approach using both micro and macro data. Alongside our fundamental research work through which RWI contributes to the body of economic knowledge, it is the aim of the applied research at the research division “Public Finance” to provide timely and precise recommendations for economic policy on the basis of relevant findings and a solid evidence base. Apart from answering the questions raised in research projects that RWI regularly acquires through competitive public tenders, the research division raises its voice in statements to the German Parliament and the North-Rhine Westphalian state parliament as well as in media interviews and opinion pieces for the regional and national press.