18. November 2025
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Papers
On the role of normative evaluations in the potential output estimation procedure
1 min Lesezeit
The method used to estimate potential output has a significant impact on the fiscal space available in Germany and the EU. Potential output estimation is necessarily value-dependent because it incorporates forecasts about the development of the labour market, investment and productivity. The study outlines the objectives laid down in the primary law of the European Union and in the constitutional law of the Federal Republic of Germany regarding high employment levels, gender equality and climate protection. It shows that both the European and the national fiscal rules already permit these objectives to be taken into account under current law, but argues in favour of clearer provisions as part of potential future reforms.
Why did we commission the legal opinion?
The method used to estimate potential output fundamentally determines the fiscal space available to the EU and its Member States. Its calculation is based on assumptions about the labour market, investment and productivity, and is therefore value-dependent. The aim of the legal opinion was to clarify the legal foundations of these value judgements and to show which objectives of Union law and constitutional law – in particular employment, gender equality, and climate protection – should be taken into account in potential output estimation.
What did we learn?
The legal opinion shows that a legally permissible potential output estimate must not disregard social and environmental objectives. Both Union law and the German Basic Law oblige policymakers to promote high employment, gender equality and climate protection. These objectives can already be embedded in the methodology today, and future reforms should explicitly incorporate them.
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