This article studies the tax and fiscal policies of the second grand coalition under Chancellor Merkel. It demonstrates that the government contented itself with merely administering balanced budgets or surpluses, instead of seizing the opportunity of exceptionally good economic conditions and low interest rates to implement important structural reforms and increase investment in public infrastructure. This outcome can be explained by two factors: (1) diverging fiscal policy preferences between the two coalition partners, and (2) uncertainty in the face of the continuing euro crisis. The article substantiates this claim on the basis of quantitative data on policy outputs and the structure of revenues and expenses, and by qualitatively tracing the policy processes leading to the few fiscal decisions that were of major importance: the reform of inheritance taxation, packages against tax evasion and avoidance, and a reform of the federal equalisation payments system. The analysis shows that in these more far-reaching decisions the coalition acted in response to external constraints – including decisions from the constitutional court, international cooperation, and legal action by Länder governments – rather than on its own political initiative.